SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT TO APPLICATION OR REPORT
Filed pursuant to Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934
CHAMPION ENTERPRISES, INC.
(Exact name of registrant as specified in charter)
2701 University Drive, Suite 320, Auburn Hills, Michigan 48326
(Address of principal executive offices) (Zip Code)
<PAGE>
AMENDMENT NO. 1
The undersigned registrant hereby amends the following
items, financial statements, exhibits or other portions of its
Current Report on Form 8-K dated April 26, 1996 as set forth in
the pages attached hereto:
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired
(b) Pro Forma Financial Information
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this amendment to be
signed on its behalf by the undersigned, thereunto duly
authorized.
CHAMPION ENTERPRISES, INC.
(Registrant)
By /s/A. JACQUELINE DOUT
--------------------------------
(Signature)
A. Jacqueline Dout
Executive Vice President
and Chief Financial Officer
July 9, 1996
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired
Filed with this Report are the following audited
financial statements of Homes of Legend, Inc. (Legend):
(1) Audited Balance Sheets as of April 26, 1996 and
April 28, 1995; and
(2) Audited Statements of Income, Shareholders' Equity
and Cash Flows for the years ended April 26, 1996
and April 28, 1995.
Filed with this Report are the following audited
financial statements of Legend Realty, Inc. (Realty):
(1) Audited Balance Sheet as of April 25, 1996; and
(2) Audited Statements of Income, Shareholders' Equity
and Cash Flows for the year ended April 25, 1996.
(b) Pro Forma Financial Information
Filed with this report are the following unaudited
pro forma financial statements of the registrant:
(1) Pro Forma Consolidated Balance Sheet as of March
30, 1996;
(2) Pro Forma Consolidated Statement of Income for the
year ended December 30, 1995; and
(3) Pro Forma Consolidated Statement of Income for the
13 weeks ended March 30, 1996.
<PAGE>
HOMES OF LEGEND, INC.
Boaz, Alabama
AUDITED FINANCIAL STATEMENTS
April 26, 1996 and April 28, 1995
McGRIFF, DOWDY & ASSOCIATES, P.C.
Certified Public Accountants
Albertville, Alabama
<PAGE>
CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 1
BALANCE SHEETS 2-3
STATEMENTS OF INCOME 4
STATEMENTS OF CASH FLOWS 5
STATEMENTS OF STOCKHOLDERS' EQUITY 6
NOTES TO FINANCIAL STATEMENTS 7-14
<PAGE>
McGriff, Dowdy & Associates, P.C.
Certified Public Accountants
203 South Hambrick Street
P.O. Box 1188
Albertville, Alabama 35950
(205)878-5548
Fax (205)878-8474
Board of Directors and Stockholders
Homes of Legend, Inc.
Boaz, Alabama
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Homes of
Legend, Inc., as of April 26, 1996 and April 28, 1995, and the
related statements of income, cash flows and stockholders' equity
for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Homes of Legend, Inc., as of April 26, 1996 and April 28,
1995, and the results of its operations and its cash flows for
the years then ended, in conformity with generally accepted
accounting principles.
/s/ McGriff, Dowdy & Associates, P.C.
June 21, 1996
<PAGE>
BALANCE SHEETS
HOMES OF LEGEND, INC.
APRIL 26, 1996 AND APRIL 28, 1995
ASSETS 1996 1995
------------ ------------
CURRENT ASSETS
Cash $ 1,564,347 $ 1,896,146
Savings Accounts 1,865,540 863,541
------------ ------------
3,429,887 2,759,687
Accounts Receivable 5,572,604 3,282,707
Other Receivables 248,091 134,892
Certificates of Deposit 158,620 100,937
Inventories
Materials and Supplies 1,825,812 1,388,275
Work-in-Process 212,016 125,388
Prepaid Expenses 254,565 131,933
Short-Term Note Receivable-
Related Party 440,363 -
Current Maturity of Note
Receivable-Related Party 8,904 8,853
Current Maturity of Note
Receivable-Other 9,612 8,875
Deferred Tax Assets 479,576 169,143
----------- -----------
12,640,050 8,110,690
----------- -----------
PROPERTY AND EQUIPMENT
Land 5,000 -
Leasehold Improvements 283,314 262,777
Machinery and Equipment 879,425 624,743
Trucks and Automobiles 197,528 104,492
Office Furniture and Equipment 87,576 76,289
----------- -----------
1,452,843 1,068,301
Less Accumulated Depreciation
and Amortization 280,896 126,997
----------- -----------
1,171,947 941,304
----------- -----------
OTHER ASSETS
Organization Costs, Net of
Accumulated Amortization of
$70,790 in 1996 and
$53,092 in 1995 17,696 35,394
Deposits 21,595 21,495
Note Receivable-Related Party,
Net of Current Maturities 170,511 179,994
Note Receivable-Other, Net
of Current Maturities 26,653 36,265
Other Assets - 21,711
------------ -----------
236,455 294,859
------------ -----------
TOTAL ASSETS $14,048,452 $ 9,346,853
============ ===========
<PAGE>
LIABILITIES AND
STOCKHOLDERS' EQUITY 1996 1995
----------- -----------
CURRENT LIABILITIES
Current Maturities of Long-Term
Note Payable $ 19,874 $ 18,159
Current Maturities of
Capitalized Lease Obligations 35,177 47,074
Accounts Payable 3,535,612 2,587,859
Corporate Income Taxes Payable 169,760 545,755
Payroll Taxes Payable 231,476 142,405
Accrued Salaries and Wages 327,908 251,204
Accrued Bonuses 1,067,830 947,875
Accrued Volume Incentive 1,069,829 601,615
Accrued Warranty Expense 1,000,000 334,759
Accrued Sales Commissions 73,835 47,244
Accrued Charitable Contributions - 50,000
Accrued Environmental Liability 100,000 -
Other Accrued Expenses 285,206 360,323
---------- -----------
7,916,507 5,934,272
---------- -----------
LONG-TERM DEBT AND OTHER LIABILITIES
Note Payable, Less Current
Maturities - 19,874
Capitalized Lease Obligations,
Less Current Maturities 21,233 53,891
Deferred Tax Liabilities 68,392 45,769
---------- ----------
89,625 119,534
---------- ----------
STOCKHOLDERS' EQUITY
Common Stock - Par Value $1.00
Per Share; Authorized, Issued
and Outstanding, 1,200 Shares 1,200 1,200
Additional Paid - In Capital 448,800 448,800
Retained Earnings 5,592,320 2,843,047
----------- ----------
6,042,320 3,293,047
----------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $14,048,452 $ 9,346,853
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of these financial statements.
<PAGE>
STATEMENTS OF INCOME
HOMES OF LEGEND, INC.
FOR THE YEARS ENDED APRIL 26, 1996 AND APRIL 28, 1995
1996 1995
--------------------- ---------------------
Amount % of Sales Amount % of Sales
---------- ---------- ---------- ----------
NET SALES $82,466,215 100.00% $53,775,139 100.00%
COST OF SALES 69,423,588 84.18 45,481,751 84.58
------------ ------- ----------- -------
Gross Profit 13,042,627 15.82 8,293,388 15.42
------------ ------- ----------- -------
OPERATING EXPENSES
General and
Administrative 5,078,183 6.16 3,625,660 6.74
Selling 1,182,339 1.43 715,915 1.33
Warranty 2,538,355 3.08 976,163 1.82
------------ ------- ----------- -------
8,798,877 10.67 5,317,738 9.89
------------ ------- ----------- -------
OTHER INCOME (EXPENSE)
Interest Income 96,335 0.12 51,337 0.09
Interest Income-
Related Party 49,206 0.06 30,410 0.06
Miscellaneous Income 14,696 0.02 13,597 0.03
Loss on Sale of Fixed
Assets (19,210) (0.03) - -
Interest Expense (14,984) (0.02) (3,522) (0.01)
----------- ------- ----------- -------
126,043 0.15 91,822 0.17
----------- ------- ----------- -------
Income Before Income
Taxes 4,369,793 5.30 3,067,472 5.70
INCOME TAX PROVISION 1,620,520 1.97 1,121,625 2.09
----------- ------- ----------- -------
NET INCOME $ 2,749,273 3.33 $ 1,945,847 3.61
=========== ====== =========== ======
The accompanying Notes to Financial Statements are an integral
part of these financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS
HOMES OF LEGEND, INC.
FOR THE YEARS ENDED APRIL 26, 1996 AND APRIL 28, 1995
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income $ 2,749,273 $ 1,945,847
------------ ------------
Adjustments to Reconcile
Net Income to Net Cash
Depreciation and Amortization 171,604 98,166
Loss on Sale of Fixed Assets 19,210 -
Changes in Assets and
Liabilities
Increase in Accounts Receivable (2,289,897) (1,319,987)
Increase in Other Receivables (113,199) (48,246)
Increase in Inventories (524,165) (411,562)
Increase in Prepaid Expenses (122,632) (33,283)
Increase in Deferred Tax Assets (310,433) (96,992)
Increase in Deposits (100) (3,085)
(Increase) Decrease in Other
Assets 21,711 (21,711)
Increase in Accounts Payable 947,752 232,057
Increase (Decrease) in Corporate
Income Taxes Payable (375,995) 403,259
Increase in Payroll Taxes Payable 89,071 74,446
Increase in Accrued Salaries
and Wages 76,704 106,998
Increase in Accrued Bonuses 119,955 321,375
Increase in Accrued Volume
Incentive 468,214 368,635
Increase in Accrued Warranty
Expense 665,241 230,959
Increase in Accrued Sales
Commissions 26,591 8,272
Decrease in Accrued Charitable
Contributions (50,000) -
Increase in Accrued Environmental
Liability 100,000 -
Increase (Decrease) in Other
Accrued Expenses (75,117) 345,386
Increase in Deferred Tax Liabilities 22,623 25,943
----------- -----------
Total Adjustments (1,132,862) 280,630
----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 1,616,411 2,226,477
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment (403,760) (217,854)
Investments in Certificates of
Deposit (57,683) (100,937)
Net Borrowings on Notes Receivable-
Related Parties (430,931) -
Net Borrowings on Notes Receivable-
Other - (805,023)
Repayments of Notes Receivable-Other 8,875 771,036
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (883,499) (352,778)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing on Note Payable - 38,033
Repayments on Note Payable (18,159) -
Repayments on Capitalized Lease
Obligations (44,553) (36,053)
----------- -----------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES (62,712) 1,980
----------- -----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 670,200 1,875,679
CASH AND CASH EQUIVALENTS - Beginning
of Year 2,759,687 884,008
------------ ------------
CASH AND CASH EQUIVALENTS - End
of Year $ 3,429,887 $ 2,759,687
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash Paid During the Year For:
Income Taxes $ 2,284,325 $ 789,415
Interest 14,984 3,522
The accompanying Notes to Financial Statements are in integral
part of these financial statements.
<PAGE>
STATEMENTS OF STOCKHOLDERS' EQUITY
HOMES OF LEGEND, INC.
FOR THE YEARS ENDED APRIL 26, 1996 AND APRIL 28, 1995
Additional
Common Paid-In Retained
Stock Capital Earnings Total
------- -------- ---------- ----------
BALANCE -
April 29, 1994 $ 1,200 $448,800 $ 897,200 $1,347,200
Net Income - - 1,945,847 1,945,847
-------- -------- ---------- ----------
BALANCE -
April 28, 1995 1,200 448,800 2,843,047 3,293,047
Net Income - - 2,749,273 2,749,273
-------- -------- ---------- ----------
BALANCE -
April 26, 1996 $ 1,200 $448,800 $5,592,320 $6,042,320
======= ======== ========== ==========
The accompanying Notes to Financial Statements are an integral
part of these financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
HOMES OF LEGEND, INC.
APRIL 26, 1996 AND APRIL 28, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
Homes of Legend, Inc., is organized for the purpose of producing
manufactured housing. The Company was incorporated May 2, 1992,
and has three plants in Boaz, Alabama.
FISCAL YEAR
The Company uses a 52-53 week accounting year ending on the
Friday nearest April 30.
CASH AND CASH EQUIVALENTS
For purposes of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market by the
first-in, first-out method. Standard costing is used with price
variances analyzed and recorded monthly. The cost elements of
work-in-process are raw materials, direct labor and manufacturing
overhead.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Additions and
improvements that extend the life of an asset are capitalized.
Expenditures for repairs and maintenance are charged against
income. Depreciation is computed by the straight-line method,
based on the estimated useful lives of individual assets.
INTANGIBLES
Organization costs consist of pre-production expenses and
start-up cost to the Company and to prepare the plants for
manufacturing. Amortization is computed by the straight-line
method over sixty months.
WARRANTY EXPENSE
Homes manufactured by the Company are warranted against defects
for one year after the date of retail sale.
CONCENTRATION OF CREDIT RISK
Accounts receivable represent amounts due from manufactured home
dealerships and finance companies. As of April 26, 1996 and
April 28, 1995, the Company's receivables were $5,572,604 and
$3,282,707, respectively.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 financial
statements to conform to classifications used in 1996. These
reclassifications had no effect on net income or total
stockholders' equity.
DEPOSITS
The Company maintains accounts in four financial institutions
located in Boaz, Alabama and Albertville, Alabama. The balances
are insured by the Federal Deposit Insurance Corporation up to
$100,000 at each bank. At certain times, the Company has certain
cash balances in excess of the insured amounts.
INCOME TAXES
Income taxes are provided for the effects of transactions
reported in the financial statements and consist of taxes
currently due plus deferred taxes. Deferred taxes are recognized
for differences between the basis of assets and liabilities for
financial statement and income tax purposes. The differences
relate primarily to depreciation methods, accrued warranty
expense, accrued vacation expense, and inventory. The deferred
tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable
or deductible when the assets and liabilities are recovered or
settled.
BAD DEBTS
Bad debts are accounted for using the allowance method. The
Company considers all accounts receivable to be fully
collectible; accordingly, no allowance for doubtful accounts is
required.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company considers the product sold upon completion of the
product. Sales are invoiced and recorded on the books of the
Company on the completion date. Therefore, there are no finished
goods recorded on the financial statements.
NOTE 2 - NOTES RECEIVABLE - RELATED PARTY
SHORT TERM
The short-term note receivable - related party at April 26, 1996,
consists of a $440,363 note receivable from Legend Realty, Inc.,
a related party, payable on demand. The note bears interest at
8.75%, and is unsecured.
LONG TERM
The long-term note receivable - related party at April 26, 1996,
consists of a $200,000 note receivable dated April 1, 1994, from
Legend Realty, Inc., a related party. The note is secured by an
operating facility leased from Legend Realty, Inc., by the
Company. The note is payable in monthly installments of $1,911,
with the final installment due August 1, 2008. The note bears
interest at the rate of 8% compounded monthly. The balance of
the note was $179,465 at April 26, 1996.
NOTE 3 - NOTE RECEIVABLE - OTHER
The note receivable - other at April 26, 1996, consists of a
$50,000 note receivable dated August 11, 1994, from a nonrelated
business in Birmingham, Alabama. The note is unsecured and is
payable in monthly installments of $1,014, with the final
installment due August 11, 1999. The note bears interest at the
rate of eight percent (8%) compounded monthly.
NOTE 4 - OPERATING LEASES
The Company leases its principal operating facilities. One
facility (Plant 1), has been utilized since incorporation and is
leased for $4,500 per month. The lease is a one-year lease with
eight one-year renewal options. The lease contains a purchase
option for $650,000 which may be elected at any time during the
term of the lease, or the lease may be renewed with sixty days
written notice to the lessor.
The Company leases another facility (Plant 2) under a lease
agreement that commenced April 1, 1994, and requires minimum
lease payments of $27,500 per month through July 1, 1997, and
$15,000 per month from August 1, 1997, through December 1, 2003.
The Company opened a third operating facility (Plant 3) during
the year ended April 26, 1996. The lease commenced March 29,
1995, and requires minimum lease payments of $17,000 per month
through February 29, 2000, and $12,000 per month from March 29,
2000 through February 28, 2005.
The Company also leases storage space in another building. The
lease commenced January 15, 1995, and requires minimum monthly
lease payments of $4,782 for ten years.
Rent paid under these lease agreements totaled $645,384 and
$403,128 for the years ended April 26, 1996 and April 28, 1995,
respectively.
Plant 2, Plant 3, and the storage space are leased from Legend
Realty, Inc., a related party.
A schedule of future lease payments required under these leases
for the years ending April 30 is as follows:
1997 $ 645,384
1998 478,884
1999 441,384
2000 431,384
2001 381,384
Thereafter 1,247,190
----------
$3,625,610
==========
The Company has other minor cancellable leases.
NOTE 5 - CAPITALIZED LEASE OBLIGATIONS
The Company leases equipment under three capital leases. The
economic substance of the leases is that the Company is financing
the acquisition of the assets through the leases, and,
accordingly, they are recorded in the Company's assets and
liabilities at the lesser of the present value of the minimum
lease payments or the fair value of the asset. The assets are
amortized over their estimated useful lives. Generally, assets
under capital leases are purchased at the end of the lease term.
The following is an analysis of the leased assets included in
property and equipment at April 26, 1996 and April 28, 1995:
1996 1995
--------- ----------
Machinery and Equipment $153,173 $153,173
Less Accumulated Amortization 18,049 11,387
--------- ----------
$135,124 $141,786
======== =========
A schedule of future minimum rentals for leased property under
the capitalized leases for the years ending April 30 is as
follows:
1997 $ 39,001
1998 22,508
--------
Total Minimum Lease Payments 61,509
Less Amount Representing
Interest (5,099)
---------
$ 56,410
=========
The interest rates on the capitalized lease obligations range
from 6% to 10.9% and are imputed based upon the lower of the
Company's incremental borrowing rate at the inception of the
lease or the lessor's implicit rate of return.
NOTE 6 - BANK LINE OF CREDIT
The Company has been granted a $200,000 line of credit from First
Bank of Boaz with a maximum maturity of twelve months and
interest at two percent above New York prime. There were no
outstanding draws on the line of credit as of April 26, 1996.
The line of credit is secured by the life insurance contracts of
a stockholder.
NOTE 7 - NOTE PAYABLE
The note payable at April 26, 1996, consists of a note payable to
First Bank of Boaz dated April 11, 1995. This note is payable in
monthly installments of $1,737, including interest at nine
percent (9%), beginning May 11, 1995, and ending April 11, 1997.
The note is secured by vehicles with an approximate book value of
$38,000.
Principal maturities for fiscal years ending April 30 are as
follows:
1997 $ 19,874
NOTE 8 - INCOME TAXES
The components of the income tax provision for the years ended
April 26, 1996 and April 28, 1995 are as follows:
1996 1995
----------- -----------
Federal Income Tax Expense $1,731,434 $1,082,261
State Income Tax Expense 176,896 110,413
----------- -----------
1,908,330 1,192,674
Deferred Income Tax Benefit (287,810) (71,049)
----------- -----------
$1,620,520 $1,121,625
========== ==========
Deferred income taxes result from timing differences in the
recognition of income and expenses for income tax and financial
reporting purposes. The primary sources of the timing
differences relate to the difference in depreciation methods and
lives for income tax and financial statement purposes, the
deductions of certain accrued expenses for income tax and
financial statement purposes, and inventory valuation procedures.
NOTE 9 - EMPLOYEE BENEFIT PLANS
Retirement Benefits
The Company implemented the Homes of Legend, Inc., 401(k)
Retirement Plan on July 1, 1994. Under certain provisions of the
Plan, the Company matches 25% of the employee's contribution.
All employees who have completed one year of service as of July
1, 1994, are eligible to participate in the Plan. Any employee
who completes one year of service after July 1, 1994, will be
eligible to participate in the Plan as of the first enrollment
date, January 1 or July 1, following completion of said service
with the Company. Total pension expense was $38,510 for the year
ended April 26, 1996.
Health Benefits
During the year ended April 28, 1995, the Company began
self-insuring health care benefits for eligible employees.
Premiums are deducted from the employee's weekly wages. The
weekly premiums are $36 for family coverage and $16 for single
coverage. The Company then remits premiums into the plan. The
total liability of the Company for the calendar year 1996 is
limited to $15,000 per employee, with an aggregate limitation of
$325,000 above the fixed costs of the plan. Expenses incurred
under the plan were $484,081 for the year ended April 26, 1996.
The Company has recorded payables for claims of $153,535
pertaining to the year ended April 26, 1996. Other amounts
incurred but not reported may exist, but are limited by the terms
of the plan.
NOTE 10 - SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
During the year ended April 28, 1995, the Company leased certain
equipment under a capitalized lease obligation. The effect of
this transaction on machinery and equipment and capitalized lease
obligations was $63,750.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Under some agreements, the Company has commitments to repurchase
manufactured homes that are not sold, for a percentage of the
original sales price. The percentage decreases with time and
varies among financing sources. No homes were repurchased during
the year ended April 26, 1996.
The Company has accrued a liability of $100,000 for future
environmental cleanup costs based on the best available estimates
at
this time. However, the exact amount of future environmental
cleanup costs cannot be determined and may exceed the estimated
amount.
The Company has certain ongoing litigation, of which the ultimate
outcomes are undeterminable at this time.
NOTE 12 - SUBSEQUENT EVENT
Subsequent to April 26, 1996, all of the outstanding stock of the
Company was purchased by HLI Acquisition Corporation, Inc. (a
Michigan Corporation)(a wholly owned subsidiary of Champion
Enterprises, Inc.). The Company was then merged with HLI
Acquisition Corporation, Inc., as the surviving corporation. HLI
Acquisition Corporation, Inc., simultaneously changed its name to
Homes of Legend, Inc. (a Michigan Corporation). The merger
became effective April 27, 1996.
NOTE 13 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value:
Short-Term Note Receivable
The carrying amount reflected in the balance sheet for the
short-term note receivable approximates the fair value due to the
expected short term payment of the note.
Long-Term Notes Receivable
The fair value of long-term notes receivable, calculated using
current rates for notes with similar maturities, approximates
their carrying amount.
Long-Term Debt
The fair value of long-term debt, calculated using current rates
for loans with similar maturities, approximates their carrying
amount.
<PAGE>
LEGEND REALTY, INC.
Boaz, Alabama
FINANCIAL STATEMENTS
April 25, 1996
McGRIFF, DOWDY & ASSOCIATES, P.C.
Certified Public Accountants
Albertville, Alabama
<PAGE>
CONTENTS
--------
Page
----
INDEPENDENT AUDITORS' REPORT........................... 1
BALANCE SHEET..........................................2-3
STATEMENT OF INCOME.................................... 4
STATEMENT OF CASH FLOWS ............................... 5
STATEMENT OF STOCKHOLDERS' EQUITY...................... 6
NOTES TO FINANCIAL STATEMENTS..........................7-10
<PAGE>
McGriff, Dowdy & Associates, P.C.
Certified Public Accountants
203 South Hambrick Street
P.O. Box 1188
Albertville, Alabama 35950
(205)878-5548
Fax (205)878-8474
Board of Directors
Legend Realty, Inc.
Boaz, Alabama
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Legend Realty,
Inc., (an S-corporation) as of April 25, 1996, and the related
statements of income, cash flows, and stockholders' equity for
the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Legend Realty, Inc., as of April 25, 1996, and the results of
its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
/s/ McGriff, Dowdy & Associates, P.C.
June 21, 1996
<PAGE>
BALANCE SHEET
LEGEND REALTY, INC.
APRIL 25, 1996
ASSETS
------
CURRENT ASSETS
Cash $ 5,088
Rent Receivable 9,000
---------
14,088
---------
PROPERTY AND EQUIPMENT
Land 212,849
Buildings and Equipment 2,084,710
----------
2,297,559
Less Accumulated Depreciation (81,913)
---------
2,215,646
---------
OTHER ASSETS
Deposits 2,520
Bond Issue Costs, Net of Accumulated
Amortization of $14,054 40,252
--------
42,772
--------
TOTAL ASSETS $2,272,506
==========
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Short-Term Note Payable -Related Party $ 440,363
Current Portion of Capitalized Lease
Obligations 400,635
Current Portion of Long-Term Debt 46,262
Accrued Interest Payable 43,087
Accrued Legal Fees 36,996
---------
967,343
---------
LONG-TERM LIABILITIES
Capitalized Lease Obligation, Less
Current Maturities 674,077
Long-Term Debt, Less Current Maturities 340,530
---------
1,014,607
---------
STOCKHOLDERS' EQUITY
Common Stock-Par Value $1 per share;
Authorized, Issued and Outstanding,
1,200 Shares 1,200
Additional Paid-In Capital 2,800
Retained Earnings 286,556
--------
290,556
--------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,272,506
===========
The accompanying Notes to Financial Statements are an
integral part of these financial statements.
<PAGE>
STATEMENT OF INCOME
LEGEND REALTY, INC.
FOR THE YEAR ENDED APRIL 25, 1996
RENTAL INCOME $621,367
---------
OPERATING EXPENSES
Depreciation 55,168
Legal and Accounting Fees 58,406
Amortization 10,121
Taxes and Licenses 343
-------
124,038
-------
Income from Operations 497,329
-------
OTHER EXPENSE
Interest (129,467)
Interest-Related Party (49,206)
---------
(178,673)
---------
NET INCOME $318,656
=========
The accompanying Notes to Financial Statements are an
integral part of these financial statements.
<PAGE>
STATEMENT OF CASH FLOWS
LEGEND REALTY, INC.
FOR THE YEAR ENDED APRIL 25, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 318,656
--------
Adjustments to Reconcile Net Income to Net Cash
Depreciation and Amortization 65,289
Changes in Assets and Liabilities
Increase in Rent Receivable (2,500)
Increase in Accrued Interest Payable 34,831
Increase in Accrued Legal Fees 36,996
Decrease in Accrued Accounting Fees (6,499)
Decrease in Payroll Taxes Payable (2,000)
Decrease in Corporate Income Tax Payable (26,276)
--------
Total Adjustments 99,841
--------
NET CASH PROVIDED BY OPERATING ACTIVITIES 418,497
--------
CASH FLOWS USED BY INVESTING ACTIVITIES
Purchase of Land, Buildings and Equipment (412,403)
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from Related Party 440,363
Payments on Stockholder Loan (24,000)
Payments on Long-Term Debt (34,499)
Payments on Capitalized Lease Obligation (296,898)
Dividends (125,000)
--------
NET CASH USED BY FINANCING ACTIVITIES (40,034)
--------
DECREASE IN CASH AND CASH EQUIVALENTS (33,940)
CASH AND CASH EQUIVALENTS-Beginning of Year 39,028
--------
CASH AND CASH EQUIVALENTS-End of Year $ 5,088
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Year For:
Interest $ 143,842
Income Taxes 26,760
The accompanying Notes to Financial Statements are an integral
part of these financial statements.
<PAGE>
STATEMENT OF STOCKHOLDERS' EQUITY
LEGEND REALTY, INC.
FOR THE YEAR ENDED APRIL 25, 1996
Additional
Common Paid-In Retained
Stock Capital Earnings Total
------ --------- -------- --------
BALANCE -
April 28, 1995 $ 1,200 $ 2,800 $ 137,900 $141,900
Net Income - - 318,656 318,656
Dividends - - (170,000) (170,000)
------- ------ -------- --------
BALANCE -
April 25, 1996 $ 1,200 $ 2,800 $ 286,556 $290,556
====== ====== ======= ========
The accompanying Notes to Financial Statements are an
integral part of these financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
LEGEND REALTY, INC.
APRIL 25, 1996
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
The Company was incorporated April 4, 1994, as a real
estate rental company.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Additions and
improvements that extend the life of an asset are capitalized.
Depreciation is computed by the straight-line and accelerated
methods, based on the estimated useful lives of individual
assets.
CASH AND CASH EQUIVALENTS
For the purpose of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.
BOND ISSUE COSTS
Bond issue costs associated with the issuance of Industrial
Development Bonds are being amortized over the life of the bond
issue using the straight-line method.
INCOME TAXES
In 1994 the Company, with the consent of its stockholders,
elected effective for the year beginning January 1, 1995, to have
its income taxed under Section 1362 of the Internal Revenue Code
and similar provisions of the Code of Alabama which provide that
the stockholders are taxed on their proportionate shares of the
Company's taxable income in their individual income tax returns.
As such, no provision for federal or State of Alabama corporate
income taxes is recognized for the year ended April 25, 1996.
DEPOSITS
The Company maintains a bank account at a local bank in Boaz,
Alabama, which is insured by the Federal Deposit Insurance
Corporation for a total of $100,000. At certain times the
Company's balances exceed insured amounts and are uninsured.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
ACCOUNTING YEAR
The Company maintains its books on a calendar year basis.
However, these statements are presented for the twelve-month
period ended April 25, 1996, because of the subsequent sale of
the assets of the Company (see Note 7).
NOTE 2-CAPITALIZED LEASE OBLIGATIONS
The Company has three capitalized lease obligations with the
Industrial Development Board of the City of Boaz, Alabama. The
aggregate monthly payments totaled $29,240 per month during the
year, with interest rates ranging from 7.5% to 9.5%. The
agreements are secured by land and buildings with a net book
value of $2,032,491 at April 25, 1996. This property also serves
as collateral for a long-term note payable to Homes of Legend,
Inc, a related party (see Note 5). One of the obligations
requires a compensating balance to remain at Compass Bank equal
to the outstanding principal balance. The compensating balance is
maintained by Homes of Legend, Inc., a related party. The
required compensating balance at April 25, 1996, was $745,321.
Future minimum lease payments under the capital lease
obligations, together with the present value of minimum lease
payments for the years ending April 25, are as follows:
1997 $ 472,434
1998 264,775
1999 195,555
2000 195,555
2001 114,498
----------
1,242,817
Less amount representing
interest (168,105)
----------
Present value of minimum
lease payments $ 1,074,712
==========
NOTE 3-LONG-TERM DEBT
Long-term debt consisted of the following at April 25, 1996:
Note payable to Homes of Legend, Inc.,
a related party-original amount of
$200,000 payable in monthly installments
of $1,911, including interest at 8%;
through April 2009. Secured by real property
with a book value of $1,009,980. This
property also serves as collateral on a
capitalized lease obligation (See Note 2). $179,465
Note payable to The Home Bank-original amount
of $152,000 payable in monthly installments of
$3,782, including interest at 9%; through
December 1998. Secured by real property with
a book value of $184,162. 107,327
Note payable to The Home Bank-original amount
of $100,000 payable in one payment on March 3,
1996, with interest at 7.5%. Management has
negotiated an agreement with The Home Bank
to renew this note in March 1996 with maturity
on the renewed note as March 3, 1997. This note
is secured by $100,000 of Certificates of Deposit
owned by Homes of Legend, Inc, a related party. 100,000
-------
$386,792
========
A schedule of principal maturities of long-term debt for the
years ending April 25 is as follows:
1997 $ 46,262
1998 150,380
1999 39,726
2000 11,311
2001 12,249
2002-2009 126,864
---------
$ 386,792
=========
NOTE 4-SHORT-TERM NOTE PAYABLE
The short-term note payable at April 25, 1996, consists of a note
to Homes of Legend, Inc., a related party. The note bears
interest at 8.75% and is payable on demand. The note is
unsecured.
NOTE 5-RELATED PARTIES
The Company received 96% of its rental income for the year ended
April 25, 1996, from Homes of Legend, Inc., a related party with
common ownership and management.
NOTE 6-SUPPLEMENTAL DISCLOSURE OF NONCASH OPERATING AND
FINANCING ACTIVITIES
During the year ended April 25, 1996, the Company exchanged a
note payable to Compass Bank for a capitalized lease obligation
to the Industrial Development Board of Boaz, Alabama. The
transactions are summarized as follows:
Capitalized Lease Obligation $800,000
Long-Term Debt (800,000)
During the year ended April 25, 1996, the Company distributed
land with an estimated value of $45,000 to the shareholders. The
fair market value was approximately the same as the carrying
value on the books of the Company. No gain or loss was
recognized. The transactions are summarized as follows:
Retained Earnings $ 45,000
Land (45,000)
NOTE 7-SUBSEQUENT EVENTS
Subsequent to April 25, 1996, substantially all of the assets of
the Company were sold and the name of the Company was changed to
Double B, Inc.
NOTE 8-DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Short-Term Note Payable
The carrying amount reflected in the balance sheet for the
short-term note payable approximates the fair value due to the
expected short term payment of the note.
Long-Term Debt
The fair value of long-term debt, calculated using current rates
for loans with similar maturities approximates their carrying
amount.
CHAMPION ENTERPRISES, INC.
AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Combined
Balance Sheet and Notes Thereto
Set forth below are the respective historical balance sheets of
Champion Enterprises, Inc. and Subsidiaries (Champion), Homes of
Legend, Inc. (Legend), Legend Realty, Inc. (Realty) and the pro
forma combined position at March 30, 1996. Grand Manor, Inc.
(Grand Manor), acquired March 29, 1996, is included in Champion's
historical balance sheet. The presentation reflects (i) the
purchase of all assets and the assumption of certain liabilities
of Legend and Realty and (ii) the combined purchase price of $28
million, the cash portion of which was funded from available cash
and bank borrowings. The pro forma combined balance sheet should
be read in conjunction with the historical financial statements
of Champion, Legend and Realty and the pro forma combined
statements of income included with this amendment. The pro forma
financial statements include allocations of the purchase price to
assets and liabilities based on a preliminary review of the
respective fair values. Final allocations will be made based
upon independent appraisals, valuations and other studies which
will be conducted. The pro forma information set forth below is
not necessarily indicative of the future financial position or
the financial position that would have been reported had the
transaction been completed on March 30, 1996.
<PAGE>
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 30, 1996
(In thousands)
ASSETS
Legend Pro forma
and adjustments Pro
forma
Champion Realty Debit Credit
Combined
--------- ------ ----- ------
- ---------
CURRENT ASSETS:
Cash and cash
equivalents $11,002 $3,447 $12,500(A) $15,947(C)
$11,002
Accounts receivable,
trade 52,333 5,544 0 0
57,877
Inventories 43,988 2,334 0 0
46,322
Deferred taxes and
other 12,516 1,138 0 0
13,654
-------- ------- ------- -------
- --------
Total current
assets 119,839 12,463 12,500 15,947
128,855
-------- ------- ------- -------
- --------
PROPERTY AND
EQUIPMENT, NET 46,656 3,391 3,746(G) 0
53,793
GOODWILL, NET 89,448 0 17,529(H) 0
106,977
OTHER ASSETS 6,307 101 2,074(I) 0
8,482
-------- ------- ------- -------
- --------
Total assets $262,250 $15,955 $35,849 $15,947
$298,107
======== ======= ======= =======
========
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to
bank $19,700 $0 $2,267(D) $12,500(B)
$29,933
Accounts payable 39,017 3,793 0 0
42,810
Other accrued
liabilities 61,498 5,252 425(E) 1,896(J)
68,221
-------- ------- ------- -------
- --------
Total current
liabilities 120,215 9,045 2,692 14,396
140,964
-------- ------- ------- -------
- --------
LONG-TERM
LIABILITIES 21,988 863 755(F) 15,000(K)
37,096
SHAREHOLDERS' EQUITY:
Common stock 15,349 2 2(L) 0
15,349
Capital in excess
of par value 29,823 452 452(M) 0
29,823
Retained earnings 75,834 5,593 5,593(N) 0
75,834
Foreign currency
translation
adjustments (959) 0 0 0
(959)
-------- ------- ------- -------
- --------
Total shareholders'
equity 120,047 6,047 6,047 0
120,047
-------- ------- ------- -------
- --------
Total liabilities
and shareholders'
equity $262,250 $15,955 $9,494 $29,396
$298,107
======== ======= ======= =======
========
See accompanying Notes to Unaudited Pro Forma Consolidation
Balance Sheet.
<PAGE>
Notes to Unaudited Pro Forma Consolidated Balance Sheet
Note 1: Pro forma Adjustments to the Balance Sheet
The total purchase price and fair value of net assets acquired as
of March 30, 1996 to record the acquisition of Legend and Realty
are summarized as follows (in thousands):
Purchase price $26,000
Estimated acquisition and other costs 250
Value of stock options granted to former owners 146
Adjustments to conform accounting policies:
Additional warranty accruals $1,000
Additional legal and environmental reserves 1,000
Other reserves and contingencies 1,000
To record net deferred tax assets (1,150)
-------
Total adjustments 1,850
-------
Total purchase price to allocate to net
assets acquired $28,246
=======
Net assets acquired:
Fair value of net assets of Legend $ 5,717
Fair value of net assets of Realty 4,000
Non-compete agreements 1,000
-------
10,717
Excess of purchase price over the fair value
of net assets acquired, recorded as goodwill 17,529
-------
$28,246
=======
1. To record the borrowing of funds to finance the Legend and
Realty acquisitions:
Dr.(Cr.)
--------
Cash $12,500 (A)
Notes payable to bank (12,500)(B)
--------
$0
========
2. To record use of cash acquired to reduce long-term debt
assumed from Realty and reduce bank borrowings used to
finance the acquisitions:
Dr.(Cr.)
--------
Cash ($3,447)(C)
Notes payable to bank 2,267 (D)
Other accrued liabilities 425 (E)
Long-term liabilities 755 (F)
--------
$0
========
3. To record acquisition of Legend and Realty, eliminate Legend
and Realty shareholders' equity and allocate the purchase
price:
Dr.(Cr.)
---------
Cash (purchase of Legend and Realty) ($12,500)(C)
Property and equipment 3,746 (G)
Goodwill (excess of purchase price over
fair value of Legend and Realty net assets
acquired) 17,529 (H)
Other assets
Non-compete agreement $1,000
Deferred tax asset 1,150
Deferred costs (76) 2,074 (I)
-------
Other accrued liabilities
Deferred purchase price (1,500)
Acquisition costs (250)
Value of stock option grants (146) (1,896)(J)
-------
Other long-term liabilities
Deferred purchase price (12,000)
Warranty accrual (1,000)
Legal and environmental reserves (1,000)
Other reserves and contingencies (1,000) (15,000)(K)
--------
Common stock 2 (L)
Paid in capital 452 (M)
Retained earnings 5,593 (N)
--------
$0
========
<PAGE>
CHAMPION ENTERPRISES, INC.
AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION
Unaudited Pro forma Combined
Statement of Income and Notes Thereto
Set forth below are the respective historical statements of
income of Champion Enterprises, Inc. and Subsidiaries (Champion),
Homes of Legend, Inc. (Legend), Legend Realty, Inc. (Realty) and
the pro forma combined statement of income for the year ended
December 30, 1995, as if the transaction had been completed as of
January 1, 1995. Grand Manor, Inc.(Grand Manor), acquired March
29, 1996, is also included in this pro forma statement of income
as though it were acquired on January 1, 1995. The presentation
reflects the purchase of all assets and the assumption of certain
liabilities of Legend, Realty and Grand Manor. This pro forma
combined statement of income should be read in conjunction with
the historical financial statements of Champion, Legend and
Realty and the pro forma combined balance sheet and pro forma
combined statement of income for the 13 weeks ended March 30,
1996 included with this amendment. This pro forma combined
statement of income is not necessarily indicative of future
earnings or earnings that would have been reported for the period
indicated had the transactions been completed at January 1, 1995.
The historical financial statements of Legend for the year ended
December 30, 1995 include executive bonus expense of $2.7 million
under arrangements that were discontinued upon the acquisition by
Champion. Under new arrangements entered into in connection with
the acquisition, executive bonus expense for the first year of
operations subsequent to the acquisition is estimated to be in
the range of $1.2 million to $1.5 million.
<PAGE>
<TABLE>
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 30, 1995
(In thousands, except per share amounts)
<CAPTION>
Homes of Legend Grand
Legend, Realty, Manor, Pro forma Pro forma
Champion Inc. Inc. Inc. Adjustments Combined
-------- --------- -------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales $797,871 $69,678 $0 $22,123 $0 $889,672
-------- ------- ------ ------- ------- --------
Cost of sales 679,732 60,660 (491) 19,087 120(A) 759,108
Selling, general and
administrative expenses 63,186 5,767 0 914 925(B) 70,792
-------- ------- ------ ------- ------- --------
742,918 66,427 (491) 20,001 1,045 829,900
-------- ------- ------ ------- ------- --------
Operating income 54,953 3,251 491 2,122 (1,045) 59,772
Other income (expense):
Interest income 810 95 0 0 (190)(C) 715
Interest expense (2,313) 0 (162) (28) (1,700)(D) (4,203)
-------- ------- ------ ------- ------- --------
Income before income
taxes 53,450 3,346 329 2,094 (2,935) 56,284
Income taxes 21,200 1,250 0 0 (150)(E) 22,300
-------- ------- ------ ------- ------- --------
Net income $32,250 $2,096 $329 $2,094 ($2,785) $33,984
======== ======= ====== ======= ======= ========
Income per share $2.02 $0.11 $2.13
======== ======= ========
Weighted average
shares outstanding 15,963 15 15,978
======== ======= ========
Pro forma per share
amounts adjusted
for two-for-one
stock split effective
May 31, 1996 $1.01 $0.05 $1.06
======== ======= ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated
Statement of Income.
<PAGE>
Notes to Unaudited Pro Forma Consolidated Statement of Income
Note 1: Pro forma Adjustments to Statement of Income
(In thousands) DR (CR)
---------
1. Depreciation of additional cost assigned to
buildings $120 (A)
2. Amortization of non-compete agreements over
42 months 280 (B)
3. Amortization of goodwill over 40 years 645 (B)
4. To adjust interest income to record the use
of cash to fund the acquisitions 190 (C)
5. To adjust interest expense for borrowings
to fund the acquisitions 1,700 (D)
------
Total adjustments to income before income tax 2,935
6. To accrue income taxes on income of Grand Manor
and Realty and record the tax benefit of pro
forma adjustments (150)(E)
-------
Total adjustments to Statement of Income $2,785
=======
Note 2: Income Taxes
The pro forma provision for income taxes has been calculated on a
consolidated basis as if the transactions had been completed on
January 1, 1995. The difference between taxes provided for
financial reporting purposes and expected charges at the U.S.
federal statutory rate is principally due to state taxes, net of
the federal tax benefit, and higher rates on earnings of foreign
operations.
Note 3: Earnings Per Share
Pro forma earnings per share is based on the average number of
shares outstanding during the period including options issued to
executives of the acquired companies under stock option
agreements entered into upon the acquisitions.
Note 4: Stock Split
On April 29,1996 the Board of Directors approved a two-for-one
split of Champion's common stock effective May 31,1996 to holders
of record on May 16, 1996.
<PAGE>
CHAMPION ENTERPRISES, INC.
AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION
Unaudited Pro forma Combined
Statement of Income and Notes Thereto
Set forth below are the respective historical statements of
income of Champion Enterprises, Inc. and Subsidiaries (Champion),
Homes of Legend, Inc. (Legend), Legend Realty, Inc. (Realty) and
the pro forma combined statement of income for the 13 weeks ended
March 30, 1996, as if the transaction had been completed as of
December 31, 1995. Grand Manor, Inc. (Grand Manor), acquired
March 29, 1996, is also included in this pro forma statement of
income as though it were acquired on December 31, 1995. The
presentation reflects the purchase of all assets and the
assumption of certain liabilities of Legend, Realty and Grand Manor. The
pro forma combined statement of income should be read in conjunction
with the historical financial statements of Champion, Legend and
Realty and the pro forma combined balance sheet and pro forma combined
statement of income for the year ended December 30, 1995 included
with this amendment. The pro forma combined statement of income
is not necessarily indicative of future earnings or earnings that
would have been reported for the period indicated had the transactions
been completed at December 31, 1995.
The historical financial statements of Legend for the 13 weeks
ended March 30, 1996 include executive bonus expense of $600,000
under arrangements that were discontinued upon the acquisition by
Champion. Under new arrangements entered into in connection with
the acquisition, annual executive bonus expense for the first
year of operations subsequent to the acquisition is estimated to
be in the range of $1.2 million to $1.5 million.
<PAGE>
<TABLE>
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
13 WEEKS ENDED MARCH 30, 1996
(In thousands, except per share amounts)
<CAPTION>
Homes of Legend Grand
Legend, Realty, Manor, Pro forma Pro forma
Champion Inc. Inc. Inc. Adjustments Combined
-------- ------- ------- ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales $192,983 $20,195 $0 $6,334 $0 $219,512
-------- ------- ------- ------ ------- --------
Cost of sales 164,030 17,660 (134) 5,329 30(A) 186,915
Selling, general and
administrative
expenses 16,209 1,603 0 246 231(B) 18,289
-------- ------- ------- ------ ------- --------
180,239 19,263 (134) 5,575 261 205,204
-------- ------- ------- ------ ------- --------
Operating income 12,744 932 134 759 (261) 14,308
Other income (expense):
Interest income 149 42 0 0 (30) (C) 161
Interest expense (338) 0 (43) (6) (380) (D) (767)
-------- ------- ------- ------ ------- --------
Income before
income taxes 12,555 974 91 753 (671) 13,702
Income taxes 4,800 360 0 0 140 (E) 5,300
-------- ------- ------- ------- ------- --------
Net income $7,755 $614 $91 $753 ($811) $8,402
======== ======= ======= ======= ======= ========
Income per share $0.47 $0.04 $0.51
======== ======= ========
Weighted average
shares
outstanding 16,395 15 16,410
======== ======= ========
Pro forma per share
amounts adjusted
for two-for-one
stock split effective
May 31, 1996 $0.24 $0.02 $0.26
======== ======= ========
See accompanying Notes to Unaudited Pro Forma Consolidated
Statement of Income.
</TABLE>
<PAGE>
Notes to Unaudited Pro Forma Consolidated Statement of Income
Note 1: Pro forma Adjustments to Statement of Income
(In thousands) DR (CR)
--------
1. Depreciation of additional cost assigned
to buildings $30 (A)
2. Amortization of non-compete agreements over
42 months 70 (B)
3. Amortization of goodwill over 40 years 161 (B)
4. To adjust interest income to record the use
of cash to fund the acquisitions 30 (C)
5. To adjust interest expense for borrowings to
fund the acquisitions 380 (D)
-----
Total adjustments to income before income tax 671
6. To accrue income taxes on income of Grand
Manor and Realty and record the tax benefit
of pro forma adjustments 140 (E)
-----
Total adjustments to Statement of Income $811
=====
Note 2: Income Taxes
The pro forma provision for income taxes has been calculated on a
consolidated basis as if the transactions had been completed on
December 31, 1995. The difference between taxes provided for
financial reporting purposes and expected charges at the U.S.
federal statutory rate is principally due to state taxes, net of
the federal tax benefit, and higher rates on earnings of foreign
operations.
Note 3: Earnings Per Share
Pro forma earnings per share is based on the average number of
shares outstanding during the period including options issued to
executives of the acquired companies under stock option
agreements entered into upon the acquisitions.
Note 4: Stock Split
On April 29, 1996 the Board of Directors approved a two-for-one
split of Champion's common stock effective May 31, 1996 to
holders of record on May 16, 1996.
