<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 0-22386
--------
REDMAN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2246805
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2550 WALNUT HILL LN., STE. 200
DALLAS, TEXAS 75229
(Address of principal executive offices) (Zip Code)
(214) 353-3600
Registrant's telephone number, including area code
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 periods 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
--- ---
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF NOVEMBER 5, 1996: 13,318,253
<PAGE>
INDEX
REDMAN INDUSTRIES, INC.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements: PAGE
Condensed Consolidated Balance Sheets-
September 27, 1996 and March 29, 1996
Condensed Consolidated Statements of Income-
Three month periods ended September 27, 1996
and September 29, 1995; Six month periods
ended September 27, 1996 and September 29,
1995
Condensed Consolidated Statements of Cash
Flows - Six month periods ended September
27, 1996 and September 29, 1995
Notes to Condensed Consolidated Financial
Statements - September 27, 1996
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None.
<PAGE>
INDEX
REDMAN INDUSTRIES, INC.
PART II. OTHER INFORMATION AND SIGNATURES - CON'T
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
A special meeting of the shareholders of the Registrant was held on
October 24, 1996 to vote on the merger agreement between the Registrant
and Champion Enterprises, Inc. There were 9,847,902 shares voted in
favor of the merger, 9,398 shares voted against the merger and 69,180
shares abstaining.
Item 5. Other Information
The merger between the Registrant and Champion Enterprises, Inc. was
effective October 24, 1996. As of that date, the Registrant became a
wholly-owned subsidiary of Champion.
Item 6. Exhibit and Reports on Form 8-K.
A report on Form 8-K for the Registrant was filed on August 21, 1996 in
connection with the Registrant's execution of an Agreement and Plan of
Merger with Champion Enterprises, Inc.
Exhibit (11) - Statement Re: Earnings Per Share
<PAGE>
Redman Industries, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
September 27, March 29,
1996 1996
-------------- ----------
Current assets: (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 24,117 $ 8,841
Short-term investments 5,970 9,934
Accounts and notes receivable 45,343 41,985
Inventories 23,143 22,587
Prepaid expenses 2,923 1,080
Deferred tax assets 8,905 8,905
-------- --------
Total current assets 110,401 93,332
Property, plant and equipment, at cost 73,691 63,014
Accumulated depreciation and amortization (26,195) (24,720)
-------- --------
47,496 38,294
Intangible assets, net 20,770 21,138
Other assets 2,699 3,704
-------- --------
$181,366 $156,468
======== ========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Current liabilities:
<S> <C> <C>
Accounts payable $ 22,846 $ 20,289
Accrued expenses 62,879 49,645
Current portion of long-term debt 359 951
--------- --------
Total current liabilities 86,084 70,885
Long-term debt 1,128 1,585
Deferred tax liabilities 6,596 8,694
Other liabilities 11,085 12,265
Shareholders' equity:
Preferred stock -- --
Common stock, $.01 par value
Authorized shares - 20,000,000
Issued and outstanding shares -
14,518,753 and 14,502,400, respectively 145 145
Additional paid-in capital 50,149 50,060
Retained earnings 44,329 29,793
Less treasury stock, at cost:
1,202,000 & 1,142,000 shares, respectively (18,150) (16,959)
-------- --------
Total shareholders' equity 76,473 63,039
-------- --------
$181,366 $156,468
======== ========
</TABLE>
<PAGE>
Redman Industries, Inc.
Condensed Consolidated Statements of Income (Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Month Period Ended
----------------------------------
September 27, September 29,
1996 1995
------------- -------------
<S> <C> <C>
Net sales $ 173,345 $ 153,404
Cost of products sold 137,316 121,070
--------- ---------
Gross margin 36,029 32,334
Selling expenses 14,121 12,865
General and administrative expenses 10,279 9,734
--------- ---------
Income from operations 11,629 9,735
Interest income 550 551
Interest expense (98) (122)
--------- ---------
Income before income taxes 12,081 10,164
Income tax expense 4,892 4,218
--------- ---------
Net income $ 7,189 $ 5,946
========= =========
Net earnings per common share $0.53 $0.41
========= =========
Weighted average common shares 13,588 14,346
========= =========
</TABLE>
<PAGE>
Redman Industries, Inc.
Condensed Consolidated Statements of Income (Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six Month Period Ended
---------------------------------
September 27, September 29,
1996 1995
------------- -------------
<S> <C> <C>
Net sales $ 345,345 $ 311,208
Cost of products sold 272,613 247,096
---------- ----------
Gross margin 72,732 64,112
Selling expenses 28,979 25,103
General and administrative expenses 20,167 19,201
---------- ----------
Income from operations 23,586 19,808
Interest income 1,052 970
Interest expense (209) (258)
---------- ----------
Income before income taxes 24,429 20,520
Income tax expense 9,893 8,516
---------- ----------
Net income $ 14,536 $ 12,004
========== ==========
Net earnings per common share $1.07 $0.83
========== ==========
Weighted average common shares 13,586 14,348
========== ==========
</TABLE>
<PAGE>
Redman Industries, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Month Period Ended
---------------------------
September 27, September 29,
1996 1995
------------- -------------
Operating Activities:
<S> <C> <C>
Net income $ 14,536 $ 12,004
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,980 2,607
Deferred income tax benefit (2,099) (2,143)
Other noncash items (18) (288)
-------- --------
15,399 12,180
Change in operating working capital accounts:
Accounts and notes receivable (3,576) (2,044)
Inventories (901) 2,268
Prepaid expenses (1,843) 409
Accounts payable and accrued expenses 14,546 6,314
-------- --------
Net cash provided by operating activities 23,625 19,127
Investing Activities:
Purchases of property, plant and equipment (12,204) (5,192)
Proceeds from sales of property, plant and equipment 550 23
Purchase of short-term investments (15,793) (11,664)
Maturities of short-term investments 20,000 8,000
Proceeds from notes receivable 1,564 0
Other (226) (184)
-------- --------
Net cash used in investing activities (6,109) (9,017)
Financing Activities:
Principal payments on borrowings (1,049) (585)
Purchase of treasury stock (1,191) (1,608)
-------- --------
Net cash used in financing activities (2,240) (2,193)
-------- --------
Increase in cash and cash equivalents 15,276 7,917
Cash and cash equivalents at beginning of year 8,841 13,111
-------- --------
Cash and cash equivalents at end of period $ 24,117 $ 21,028
======== ========
Supplemental Information:
Cash payments for federal income taxes $ 9,900 $ 10,400
======== ========
</TABLE>
<PAGE>
Redman Industries, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 27, 1996
Basis of Presentation
The accompanying Unaudited Condensed Consolidated Financial Statements of Redman
Industries, Inc. (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Because of the seasonal
nature of the Company's business, operating results for the three and six month
periods ended September 27, 1996 are not necessarily indicative of the results
that may be expected for the fiscal year. For further information, refer to the
Consolidated Financial Statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended March 29, 1996.
<TABLE>
<CAPTION>
INVENTORIES (in thousands)
September 27, March 29,
1996 1996
------------- ---------
<S> <C> <C>
Material and purchased parts $ 15,619 $ 16,055
Finished products and work-in progress 8,615 7,279
LIFO reserve (1,091) (747)
------------ --------
$ 23,143 $ 22,587
============ ========
ACCRUED EXPENSES (in thousands)
September 27, March 29,
1996 1996
------------- ---------
Product warranty $ 18,546 $ 16,017
Sales incentives 19,827 11,852
Employee compensation and benefits 12,260 11,305
Insurance 4,577 3,765
Reserve for repurchase losses 2,876 2,473
Other 4,793 4,233
------------ --------
$ 62,879 $49,645
============ ========
</TABLE>
INCOME TAXES
The effective income tax rates for the three and six month periods ended
September 27, 1996 and September 29, 1995, respectively, differ from the Federal
statutory rate primarily due to the nondeductibility of goodwill amortization
and state income taxes.
<PAGE>
Redman Industries, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 27, 1996
Subsequent Event
On October 24, 1996, the Company became a wholly-owned subsidiary of Champion
Enterprises, Inc. and ceased trading its Common Stock. Under the terms of the
Merger Agreement previously approved by the Company's shareholders, each share
of Company Common Stock will be exchanged for 1.24 shares of Champion
Enterprises, Inc. Common Stock. As of September 27, 1996, approximately $1.3
million of merger costs had been paid or accrued and classified as prepaid
expenses.
[Remainder of page left intentionally blank]
<PAGE>
REDMAN INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THREE MONTH PERIOD ENDED SEPTEMBER 27, 1996 COMPARED TO THREE MONTH PERIOD
ENDED SEPTEMBER 29, 1995 (HEREINAFTER REFERRED TO AS 1996 AND 1995,
RESPECTIVELY) - CON'T
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
SEPT. 28, SEPT. 29, DOLLAR %
1996 1995 INCREASE INCREASE
-----------------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 173,345 $ 153,404 $ 19,941 13.0%
GROSS MARGIN DOLLARS 36,029 32,334 3,695 11.4%
GROSS MARGIN PERCENTAGE 20.8% 21.1%
SELLING EXPENSES 14,121 12,865 1,256 9.8%
SELLING EXPENSES AS A
PERCENTAGE OF NET SALES 8.1% 8.4%
G&A EXPENSES 10,279 9,734 545 5.6%
G&A EXPENSES AS A
PERCENTAGE OF NET SALES 5.9% 6.3%
OPERATING INCOME 11,629 9,735 1,894 19.5%
OPERATING INCOME AS A
PERCENTAGE OF NET SALES 6.7% 6.3%
</TABLE>
<PAGE>
REDMAN INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THREE MONTH PERIOD ENDED SEPTEMBER 27, 1996 COMPARED TO THREE MONTH PERIOD
ENDED SEPTEMBER 29, 1995 (HEREINAFTER REFERRED TO AS 1996 AND 1995,
RESPECTIVELY)-CON'T
NET SALES. Net sales increased 13.0% on shipment of 6,661 homes in 1996
compared to 6,133 homes shipped in 1995. The average sales price per home
increased 5.0% to $25,700 in 1996 from $24,500 in 1995, due to slight price
increases and an increase of multi-wide homes as a percent of total homes
shipped (55% multi-wide shipments in 1996 compared to 51% in 1995).
GROSS MARGIN. The decrease in gross margin percentage is primarily due to
slight material price increases.
SELLING EXPENSES. The decrease in selling expenses as a percentage of net sales
is due to decreased service expense. Service expense as a percentage of net
sales declined to 5.3% in 1996 compared to 5.4% in 1995.
GENERAL AND ADMINISTRATIVE EXPENSES. The increase in general and administrative
expenses of $545,000 was due primarily to formula-driven employee incentive
bonus increases of $328,000 related to improved operating results. The decrease
in general and administrative expenses as a percent of net sales is due to the
relative fixed nature of these expenses (except for bonuses) which are spread
over a higher sales base.
OPERATING PROFIT. The operating trends previously discussed accounted for the
$1.9 million increase in operating income.
<PAGE>
REDMAN INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THREE MONTH PERIOD ENDED SEPTEMBER 27, 1996 COMPARED TO THREE MONTH PERIOD
ENDED SEPTEMBER 29, 1995 (HEREINAFTER REFERRED TO AS 1996 AND 1995,
RESPECTIVELY) - CON'T
INCOME TAX EXPENSE. The effective income tax rates of 40.5% and 41.5% in 1996
and 1995, respectively, differ from the federal statutory rate due to the
nondeductibility of goodwill amortization and state income taxes, net of federal
benefit. The decline in the effective income tax rate from 1994 to 1995 is
primarily due to the reduced effect that goodwill amortization and state income
taxes have on the effective tax rates in periods of higher pretax income and
lower state income taxes.
[Remainder of page left intentionally blank]
<PAGE>
REDMAN INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SIX MONTH PERIOD ENDED SEPTEMBER 28, 1996 COMPARED TO SIX MONTH PERIOD ENDED
SEPTEMBER 29, 1995 (HEREINAFTER REFERRED TO AS 1996 AND 1995, RESPECTIVELY)
<TABLE>
<CAPTION>
SIX MONTH PERIOD ENDED
SEPT. 28, SEPT. 29, DOLLAR %
1996 1995 INCREASE INCREASE
-----------------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 345,345 $ 311,208 $ 34,137 11.0%
GROSS MARGIN DOLLARS 72,732 64,112 8,620 13.4%
GROSS MARGIN PERCENTAGE 21.1% 20.6%
SELLING EXPENSES 28,979 25,103 3,876 15.4%
SELLING EXPENSES AS A
PERCENTAGE OF NET SALES 8.4% 8.1%
G&A EXPENSES 20,167 19,201 966 5.0%
G&A EXPENSES AS A
PERCENTAGE OF NET SALES 5.8% 6.2%
OPERATING INCOME 23,586 19,808 3,778 19.1%
OPERATING INCOME AS A
PERCENTAGE OF NET SALES 6.8% 6.4%
</TABLE>
<PAGE>
REDMAN INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SIX MONTH PERIOD ENDED SEPTEMBER 27, 1996 COMPARED TO SIX MONTH PERIOD
ENDED SEPTEMBER 29, 1995 (HEREINAFTER REFERRED TO AS 1996 AND 1995,
RESPECTIVELY) - CON'T
NET SALES. Net sales increased 11.0% on shipment of 13,425 homes in 1996
compared to 12,573 homes shipped in 1995. The average sales price per home
increased 4.9% to $25,400 in 1996 from $24,200 in 1995, due to slight price
increases and an increase of multi-wide homes as a percent of total homes
shipped (55% multi-wide shipments in 1996 compared to 51% in 1995).
GROSS MARGIN. The increase in gross margin percentage is primarily due to
slight price increases, favorable lumber prices and higher sales volume spread
over the fixed cost component of cost of sales.
SELLING EXPENSES. The increase in selling expenses as a percentage of net sales
is due to increased service expense and additional sales incentive programs at
the Company's west coast plants. Service expense as a percentage of net sales
rose to 5.4% in 1996 compared to 5.0% in 1995 due to an increase in number of
homes serviced and average service cost per home.
GENERAL AND ADMINISTRATIVE EXPENSES. The increase in general and administrative
expenses of $966,000 was due primarily to formula-driven employee incentive
bonus increases of $730,000 related to improved operating results. The decrease
in general and administrative expenses as a percent of net sales is due to the
relative fixed nature of these expenses (except for bonuses) which are spread
over a higher sales base.
<PAGE>
REDMAN INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SIX MONTH PERIOD ENDED SEPTEMBER 27, 1996 COMPARED TO SIX MONTH PERIOD
ENDED SEPTEMBER 29, 1995 (HEREINAFTER REFERRED TO AS 1996 AND 1995,
RESPECTIVELY) - CON'T
OPERATING PROFIT. The operating trends previously discussed accounted for the
$3.8 million increase in operating income.
INCOME TAX EXPENSE. The effective income tax rates of 40.5% and 41.5% in 1996
and 1995, respectively, differ from the federal statutory rate due to the
nondeductibility of goodwill amortization and state income taxes, net of federal
benefit. The decline in the effective income tax rate from 1994 to 1995 is
primarily due to the reduced effect that goodwill amortization and state income
taxes have on the effective tax rates in periods of higher pretax income and
lower state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are cash flows from operations. The $50
million revolving credit facility was canceled on the Merger Date. The Company's
primary uses of cash are to fund its operating needs and capital expenditures.
Cash balances are typically at their highest level at the end of a quarter.
However, cash balances decline in the month following the end of a quarter due
to payments of retailer volume and employee incentive bonuses.
Cash flows provided by operating activities, excluding changes in working
capital accounts, increased by $3.2 million for the six month period ended
September 27, 1996 compared to the same period of a year ago, primarily from
improved operations as discussed above.
<PAGE>
REDMAN INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES-CON'T
Capital expenditures were $12.2 million and $5.2 million for the six month
periods ended September 27, 1996 and September 29, 1995, respectively. Capital
expenditures increased in 1996 due to the construction of the Talladega, Alabama
plant that began production in August. Other capital expenditures during these
periods were used for normal property, plant and equipment maintenance and
replacements and for the upgrading and expansion of certain of the Company's
plants to improve production capacity and efficiencies.
CYCLICALITY AND INFLATION
Inflation has had a nominal effect on the Company's manufacturing costs in the
areas of labor, manufacturing overhead and raw materials other than forestry
products and gypsum wallboard. The price of these commodities are affected more
by the interaction of supply and demand than by inflation. Historically, the
Company believes it has been able to minimize the effects of inflation by
increasing the selling prices of its homes, improving its manufacturing
efficiency and increasing its employee productivity.
BACKLOG
The Company builds a home after a specific order has been received from an
independent retailer or developer. Accordingly, the Company generally does not
maintain an inventory of unsold homes. In accordance with industry practice,
retailers can cancel orders prior to production without penalty. The Company's
backlog of orders for manufactured homes was approximately $34.0 million as of
September 27, 1996 as compared to approximately $48.8 million as of September
29, 1995. Because of the seasonality of the market for manufactured homes, the
level of backlog at any point in time is not necessarily indicative of the
expected level of future orders. The Company's backlog, as well as level of new
orders, generally drops during the late fall and winter months.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned.
REDMAN INDUSTRIES, INC.
----------------------------
(Registrant)
Date: November 5, 1996 /S/ Robert M. Linton
------------------------ -----------------------------------------
Robert M. Linton
President and
Chief Executive Officer
Date: November 5, 1996 /S/ J. Mark Kirkpatrick
------------------------ -----------------------------------------
J. Mark Kirkpatrick
Principal Accounting Officer
<PAGE>
REDMAN INDUSTRIES, INC.
EXHIBIT (11)-STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 28, JUNE 30, JUNE 28, JUNE 30,
1996 1995 1996 1995
---------------------- ---------------------
<S> <C> <C> <C> <C>
PRIMARY:
AVERAGE SHARES OUTSTANDING 13,321,420 14,143,278 13,349,086 14,170,056
NET EFFECT OF DILUTIVE
STOCK OPTIONS BASED
ON THE TREASURY STOCK
METHOD USING AVERAGE
MARKET PRICE 266,667 201,902 236,529 177,832
------------------------ -----------------------
TOTALS 13,588,086 14,345,180 13,585,616 14,347,888
======================== =======================
NET INCOME $ 7,189,000 $ 5,946,000 $14,536,000 $12,004,000
======================== =======================
PER SHARE AMOUNT $ 0.53 $ 0.41 $ 1.07 $ 0.83
======================== =======================
</TABLE>
FULLY DILUTED:
COMMON STOCK EQUIVALENTS ARE LESS THAN 3% DILUTIVE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-29-1996
<PERIOD-START> MAR-30-1996
<PERIOD-END> SEP-27-1996
<CASH> 24,117
<SECURITIES> 5,970
<RECEIVABLES> 45,343
<ALLOWANCES> 0
<INVENTORY> 23,143
<CURRENT-ASSETS> 110,401
<PP&E> 73,691
<DEPRECIATION> (26,195)
<TOTAL-ASSETS> 181,366
<CURRENT-LIABILITIES> 86,084
<BONDS> 0
0
0
<COMMON> 145
<OTHER-SE> 76,328
<TOTAL-LIABILITY-AND-EQUITY> 181,366
<SALES> 345,345
<TOTAL-REVENUES> 345,345
<CGS> 272,613
<TOTAL-COSTS> 49,146
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (843)
<INCOME-PRETAX> 24,429
<INCOME-TAX> (9,893)
<INCOME-CONTINUING> 14,536
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,536
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
</TABLE>