UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the quarterly period ended April 4, 1997 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: 0-21204
SOUTHERN ENERGY HOMES, INC.
(Exact name of registrant as specified in its charter)
Delaware 63-1083246
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Highway 41 North, P.O. Box 390, Addison, Alabama 35540
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(Address of principal executive offices) (Zip Code)
(205) 747-8589
--------------
(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 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
15,453,557, shares of Common Stock, $.0001 par value, as of May 6, 1997
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
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INDEX
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Page
PART I FINANCIAL INFORMATION:
Consolidated Condensed Balance Sheets,
April 4, 1997 and January 3, 1997 2
Consolidated Condensed Statements of Operations - Thirteen
Weeks Ended April 4, 1997 and March 29, 1996 3
Consolidated Condensed Statements of Cash Flows - Thirteen
Weeks Ended April 4, 1997 and March 29, 1996 4
Notes to Consolidated Condensed Financial Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II OTHER INFORMATION 11
SIGNATURES 12
1
I. FINANCIAL INFORMATION
Item 1. Financial Statements
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
April 4, January 3,
1997 1997
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $1,861,000 $5,299,000
Accounts receivable (less allowance for doubtful accounts of
$292,000 and $362,000, respectively) 31,852,000 17,558,000
Installment contracts receivable - current 435,000 421,000
Inventories 25,175,000 27,019,000
Deferred tax benefits 1,886,000 1,829,000
Prepayments and other 1,989,000 890,000
------------------- ---------------------
63,198,000 53,016,000
------------------- ---------------------
PROPERTY AND EQUIPMENT:
Property and equipment, at cost 25,283,000 23,527,000
Less - accumulated depreciation 5,684,000 5,169,000
------------------- ---------------------
19,599,000 18,358,000
------------------- ---------------------
INTANGIBLES AND OTHER ASSETS
Installment contracts receivable, less allowance for credit
losses of $1,121,000 and $1,142,000, respectively 27,073,000 26,064,000
Goodwill 12,950,000 13,093,000
Non-compete agreements 635,000 667,000
Organization and pre-operating costs 577,000 649,000
Other assets 1,292,000 811,000
------------------- ---------------------
42,527,000 41,284,000
------------------- ---------------------
$125,324,000 $112,658,000
=================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $16,157,000 $12,025,000
Accounts payable 7,803,000 4,303,000
Accrued liabilities 20,204,000 18,953,000
-------------------
---------------------
44,164,000 35,281,000
------------------- ---------------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value, 1,000,000 shares authorized,
none outstanding - -
Common stock, $.0001 par value, 20,000,000 shares authorized,
15,437,801 shares outstanding at April 4, 1997 and
January 3, 1997 2,000 2,000
Capital in excess of par 35,999,000 35,999,000
Retained earnings 45,159,000 41,376,000
-------------------
---------------------
81,160,000 77,377,000
------------------- ---------------------
$125,324,000 $112,658,000
=================== =====================
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
2
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-----------------------------------------
April 4, March 29,
1997 1996
--------------- --------------
<S> <C> <C>
NET REVENUES $80,116,000 $71,111,000
COST OF SALES 67,618,000 61,763,000
--------------- --------------
Gross profit 12,498,000 9,348,000
--------------- --------------
OPERATING EXPENSES:
Selling 2,925,000 1,659,000
General and administrative 2,991,000 2,219,000
Provision for credit losses - 194,000
Amortization of intangibles 250,000 125,000
--------------- --------------
6,166,000 4,197,000
--------------- --------------
Operating income 6,332,000 5,151,000
--------------- --------------
INTEREST EXPENSE 277,000 1,000
INTEREST INCOME 43,000 214,000
--------------- --------------
Income before income taxes 6,098,000 5,364,000
PROVISION FOR INCOME TAXES 2,315,000 2,067,000
--------------- --------------
Net income $3,783,000 $3,297,000
=============== ==============
NET INCOME PER COMMON SHARE $0.25 $0.22
=============== ==============
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON
EQUIVALENT SHARES 15,437,801 15,053,414
=============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
April 4, March 29,
1997 1996
---------------- ----------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 3,783,000 $ 3,297,000
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation of property and equipment 515,000 336,000
Amortization of intangibles 250,000 125,000
Credit for deferred tax benefits (57,000) -
Provision for doubtful accounts (70,000) 185,000
Provision for credit losses - 194,000
Origination of installment contracts (1,145,000) (5,899,000)
Principal collected on originated installment contracts 119,000 39,000
Change in assets and liabilities:
Decrease (increase) in inventories 1,844,000 (3,669,000)
Increase in accounts receivable (14,224,000) (7,246,000)
Increase in prepayments and other (1,099,000) (1,289,000)
Increase in accounts payable 3,500,000 3,490,000
Increase in accrued liabilities 1,251,000 4,329,000
---------------- ----------------
Net cash used in operating activities (5,333,000) (6,108,000)
---------------- ----------------
INVESTING ACTIVITIES:
Purchase of subsidiary, net of cash acquired - (413,000)
Capital expenditures (1,756,000) (545,000)
Maturities of investments - 2,076,000
Purchase of investments - (50,000)
Investment in joint ventures (481,000) -
---------------- ----------------
Net cash (used in) provided by investing activities (2,237,000) 1,068,000
---------------- ----------------
FINANCING ACTIVITIES:
Net borrowings on notes payable 4,132,000 -
Repayments on long-term debt - (15,000)
---------------- ----------------
Net cash (used in) provided by financing activities 4,132,000 (15,000)
---------------- ----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,438,000) (5,055,000)
---------------- ----------------
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE
PERIOD 5,299,000 16,750,000
---------------- ----------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 1,861,000 $ 11,695,000
================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 293,000 $ 1,000
================ ================
Income taxes paid $ 1,383,000 $ 433,000
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The consolidated condensed balance sheet as of January 3, 1997, which has been
derived from audited financial statements, and the unaudited interim
consolidated condensed financial statements as of April 4, 1997, have been
prepared by the Company without audit, but in the opinion of management reflect
all adjustments necessary for the fair presentation of the Company's financial
position as of January 3, 1997 and April 4, 1997 and the results of their
operations for the thirteen week periods ended April 4, 1997 and March 29, 1996.
Results of operations for the interim 1997 period are not necessarily indicative
of results expected for the full year. While certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange Commission,
the Company believes that the disclosures herein are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with the audited financial statements and the notes thereto
included in the Company's Annual Report to Stockholders for the fiscal year
ended January 3, 1997.
2. INVENTORIES:
Inventories are valued at first-in, first-out ("FIFO") cost, which is not in
excess of market. An analysis of inventories follows:
April 4, January 3,
1997 1997
(Unaudited)
Raw materials $11,050,000 $ 11,607,000
Work in progress 1,221,000 1,108,000
Finished goods 12,904,000 14,304,000
------------ ------------
$25,175,000 $ 27,019,000
============ ============
3. NET INCOME PER SHARE:
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per
Share. This statement establishes standards for computing and presenting
earnings per share ("EPS"). This Statement will simplify the standards for
computing earnings per share previously found in APB Opinion No. 15, Earnings
per share, and will make them comparable to international EPS standards. It will
replace the presentation of primary EPS with a presentation of basic EPS and
will require dual presentation of basic and diluted EPS on the face of the
income statement and requires a reconciliation of the numerator and denominator
of the basic EPS computation to the numerator and denominator of the diluted EPS
computation.
This Statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods and requires restatement of
all prior-period EPS data presented. The Company will adopt the Statement at
fiscal year-end 1997. Had the Company implemented SFAS 128 on December 30, 1995,
the pro forma EPS results would have been as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended April 4, 1997 Thirteen Weeks Ended March 29, 1996
---------------------------------- -----------------------------------
Dilutive Dilutive
Effect of Effect of
Options Options
Basic Issued Diluted Basic Issued Diluted
----- ------ ------- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net income $3,783,000 - $3,783,000 $3,297,000 - $3,297,000
Shares available to
Common shareholders 15,437,801 129,632 15,567,433 15,053,414 161,885 15,215,299
Earnings per share $ 0.25 - $ 0.24 $ 0.22 - $ 0.22
</TABLE>
5
4. REPURCHASE AGREEMENTS:
It is customary practice for companies in the manufactured home industry to
enter into repurchase agreements with financial institutions which provide
financing to dealers. Generally, the agreements provide for the repurchase of
the manufactured homes from the financing institution in the event of
repossession upon an independent dealer's default. The Company's contingent
liability under such agreements is approximately $91.2 million as of April 4,
1997. Losses experienced under these agreements have not been significant and,
in the opinion of management, any future losses under these agreements should
not have a material effect on the accompanying financial statements.
5. LEGAL PROCEEDINGS:
The Company is a defendant in a lawsuit filed on March 27, 1996 in Fulton County
Superior Court, Georgia by EurAm International, Inc., a sales agent for the
Company. On April 29, 1996 the Company removed the case to the United States
District Court for the Northern District of Georgia in Atlanta. In this lawsuit,
the plaintiff alleges that the Company has breached an agreement relating to the
sale of the Company's modular homes in Germany, including alleged
misrepresentations and faulty performance, resulting in damages alleged to
amount to $25 million. The Company believes the claim is without merit and
intends to vigorously defend the claim, but the litigation is currently in
discovery and there can be no assurances as to its likely outcome.
In addition, the Company has been informed by Gesellschoft fur Bauen Und Wohnen
Hannover MbH ("GBH"), a German housing authority, that it has replaced the
Company with a local company to complete a contract that GBH had entered into
with the Company for the purchase and erection of modular housing in Hannover,
Germany. In connection with the contract, the Company posted a $660,000 letter
of credit in favor of GBH. In March 1997, GBH made a claim against the Company
for damages of approximately $800,000 arising from the shift in suppliers and
has attempted to draw upon the letter of credit posted by the Company. The
Company has obtained a temporary restraining order preventing GBH from drawing
upon the letter of credit and the Company is actively negotiating with GBH to
resolve the dispute. There can be no assurances as to the likely resolution of
the GBH claim.
The Company is a party to various other legal proceedings incidental to its
business. The majority of these legal proceedings relate to employment matters
or product warranty liability claims for which management believes adequate
reserves are maintained. In the opinion of management, after consultation with
legal counsel, the ultimate liability, if any, with respect to these proceedings
will not materially affect the financial position or results of operations of
the Company; however, the ultimate resolution of these matters, which could
occur within one year, could result in losses in excess of the amounts reserved.
6. BUSINESS COMBINATIONS:
Wenco has been originating and servicing consumer loans primarily for homes
manufactured by the Company. In February 1997, the Company formed a joint
venture, Wenco 21, with 21st Century. The Company has made an initial capital
contribution of $500,000 to Wenco 21, representing a 50% ownership interest of
the joint venture. Wenco 21 will continue to offer, through 21st Century,
consumer financing for homes manufactured by the Company as well as for other
homes sold through its retail centers and independent dealers. In light of the
shift in consumer finance activities to Wenco 21, Wenco has suspended its loan
origination activities and has engaged 21st Century to service its existing loan
portfolio.
In January 1997, the Company contracted to build a new corporate office facility
adjacent to its Southern Energy plant in Addison, Alabama at a cost of
approximately $1.5 million.
6
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Thirteen weeks ended April 4, 1997 as compared with thirteen weeks ended March
29, 1996.
Net Revenues
Total net revenues (gross sales less volume discounts, returns and allowances)
for the thirteen weeks ended April 4, 1997 were $80.1 million, which represented
an increase of 13% over the prior year period. During the fourth quarter of
1996, the Company entered into the retail sector of the industry through the
acquisition of BR Holding Corp., and a group of retail companies doing business
as Blue Ribbon Homes.
Net revenues of the manufactured home segment, which includes the Company's
retail operations, were $79.4 million for the thirteen weeks ended April 4, 1997
as compared with $71.0 million for the prior year period. Retail home sales
accounted for $11.9 million of the manufactured home segment revenues for the
thirteen weeks ended April 4, 1997. Sales to dealers accounted for approximately
$67.5 million of manufactured home segment revenues for the thirteen weeks ended
April 4, 1997, as compared with $71.0 million for the prior year period. This
decrease in revenue was attributable to a decrease in the number of homes
shipped, which was partially offset by an increase in the average wholesale
price per home shipped.Total homes sold in the thirteen weeks ended April 4,
1997 was 2,517, down 3.9% over the number of homes sold in the prior year
period. The decrease in homes sold was attributable primarily to a slight
decline in demand for manufactured housing during the winter months and
unfavorable weather conditions. Revenues from the Company's retail financing
segment were $679,000 for the thirteen weeks ended April 4, 1997, as compared
with $90,000 for the prior year period. This increase was attributable to the
increased lending activity by the Company's wholly owned subsidiary, Wenco
Finance, Inc. ("Wenco"). Wenco has been originating and servicing consumer loans
primarily for homes manufactured by the Company. In February 1997, the Company
formed a joint venture with 21st Century Mortgage Corporation ("21st Century").
The joint venture, Wenco 21, will continue to offer, through 21st Century,
consumer financing for homes manufactured by the Company as well as for other
homes sold through its retail centers and independent dealers. In light of the
shift in consumer finance activities to Wenco 21, Wenco has suspended its loan
origination activities and has engaged 21st Century to service its existing loan
portfolio.
Gross Profit
Gross profit consists of net revenues less the cost of sales, which includes
labor, materials and overhead. Gross profit for the thirteen weeks ended April
4, 1997 increased to $12.5 million, or 15.6% of net revenues, from $9.4 million,
or 13.1% of net revenues in the prior year period. The increase in gross profit
percentage in the current year quarter was attributable to lower raw material
prices, increased labor efficiency, and the Company's movement into the retail
sector of the industry, which typically operates at higher gross margins.
Selling Expenses
Selling expenses include primarily sales commissions, advertising expenses,
salaries for support personnel and freight costs. Selling expenses were $2.9
million, or 3.7% of net revenues, during the quarter ended April 4, 1997, as
compared with $1.7 million or 2.3% of net revenues, for the same period of the
prior year. The increase in selling expense as a percentage of net revenues was
attributable primarily to increased selling expenses associated with the
Company's retail operation, which was partially offset by savings in shipping
costs realized from an increase in shipments through MH Transport, the company's
trucking subsidiary, which reduced the company's reliance upon independent
trucking companies.
General and Administrative
7
General and administrative expenses include administrative salaries, executive
and management bonuses, insurance costs and professional fees. For the thirteen
weeks ended April 4, 1997, general and administrative expenses were $3.0
million, or 3.7% of net revenues, as compared with $2.2 million, or 3.1% of net
revenues, for the same period of 1996. The increase in general and
administrative expense is primarily attributable to salary increases during 1996
and the addition of new employees who were hired in order to resolve staffing
shortages which have occurred as the Company continues to expand.
Provision for Credit Losses
The Company provides for estimated credit losses based on industry experience,
historical loss experience, current repossession trends and costs, and
management's assessment of the current credit quality of the loan portfolio.
There was no provision for credit losses for the thirteen weeks ended April 4,
1997 as compared with $194,000 for the thirteen weeks ended March 29, 1996.
Interest Expense
Interest expense for the thirteen weeks ended April 4, 1997 was $277,000, as
compared with $1,000 in the prior year period. The increase in interest expense
in the current year period was a result of increased notes payable associated
with the floor-plan financing of the Company's retail inventory.
Interest Income
Interest income for the thirteen weeks ended April 4, 1997 was $43,000, as
compared with $214,000 in the prior year period. The decrease in interest income
in the current year period reflects lower average cash and investment balances.
Provision for Income Taxes
Income taxes are provided for based on the tax effect of revenue and expense
transactions included in the determination of pre-tax book income. Income tax
expense for the thirteen weeks ended April 4, 1997 was $2.3 million, or an
effective tax rate of 38.0% as compared with $2.1 million, or an effective tax
rate of 38.5% in the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
Since its organization, the Company has financed its operations primarily with
cash generated from a combination of operations, stock offerings, and
borrowings.
Cash Flows
During the thirteen weeks ended April 4, 1997, the Company's cash used by
operations was approximately $5.3 million. Cash used by operations includes
originations of installment contracts of $1.1 million and increased accounts
receivable and prepayments of $15.3 million. These amounts were partially offset
by net income of $3.8 million, decreased inventory of $1.8 million and increased
accounts payable and accrued liabilities of $4.7 million. In addition to cash
provided by operating activities, other significiant cash flows included capital
expenditures of $1.8 million and borrowings of $4.1 million.
During the thirteen weeks ended March 29, 1996, the Company's cash used by
operations was approximately $6.1 million. Cash used by operations included an
increase in accounts receivable of approximately $7.2 million and an increase in
inventories of approximately $3.7 million. These amounts were partially offset
by increased accounts payable and accrued liabilities of approximately $7.8
million and net income of $3.3 million. Each of these increases was primarily
related to sales growth. In addition to cash provided by operating activities,
other significant cash flows included capital expenditures of $545,000 and
maturities of investments of $2.1 million.
In February 1997, the Company formed a joint venture, Wenco 21, with 21st
Century, which through 21st Century will originate and service retail
installment contracts. The Company has made an initial capital
8
contribution of $500,000 to Wenco 21, representing a 50% ownership interest of
the joint venture. Under its joint venture agreement with 21st Century, the
Company may be called upon to make additional capital contributions or loans in
order to meet Wenco 21's capital requirements. The Company believes that cash on
hand, cash generated by its operations, and funds available under its existing
line of credit will be adequate to fund any such commitments.
At April 4, 1997, the Company's net working capital was $19.0 million, including
$1.9 million in cash equivalents, as compared with $17.7 million at January 3,
1997, including $5.3 million in cash and cash equivalents. The increase in net
working capital was a result of an increase in accounts receivable of $14.3
million and an increase in prepayments and other of $1.1 million, which was
partially offset by a decrease in inventories of $1.8 million and a decrease in
cash and cash equivalents of $3.4 million. The Company also has a $10.0 million
unsecured line of credit which is renewable annually and bears interest at the
London Interbank Offered Rate ("LIBOR") plus 1.5%. The Company's ability to draw
upon this line of credit is dependent upon meeting certain financial ratios and
covenants. The Company has $5.0 million outstanding under this line at April 4,
1997.
Substantially all of the Company's dealers finance their purchases through
"floor-plan" arrangements under which a financial institution provides the
dealer with a loan for the purchase price of the home and maintains a security
interest in the home as collateral. In connection with a floor-plan agreement,
the financial institution which provides the independent dealer financing
customarily requires the Company to enter into a separate repurchase agreement
with the financial institution under which the Company is obligated, upon
default by the dealer, to repurchase the homes at the Company's original invoice
price plus certain administrative and shipping expenses less any principal
payments made by the independent dealer. At April 4, 1997, the Company's
contingent repurchase liability under floor-plan financing arrangements was
approximately $91.2 million. While homes that have been repurchased by the
Company under floor-plan financing arrangements are usually sold to other
dealers and losses experienced to date under these arrangements have been
insignificant, no assurance can be given that the Company will be able to sell
to other dealers homes which it may be obligated to repurchase in the future
under such floor-plan financing arrangements or that the Company will not suffer
losses with respect to, and as a consequence of, those arrangements.
The Company is building a new corporate office facility in Addision, Alabama at
a cost of approximately $1.5 million and plans to acquire or open more retail
sales centers. The Company believes that cash on hand, cash generated by
operations, and funds available under its existing line of credit will be
adequate to fund its expansion plans.
Expansion
The Company has continued to demonstrate its ability to increase revenues,
expand production capacity, and vertically integrate its operations through the
acquisition of additional manufacturing facilities and businesses.
In November 1996, the Company acquired a group of retail sales centers in
Alabama and Mississippi. The purchase price consisted of approximately $1.1
million in cash and $4.5 million of common stock issued. The Company is
obligated to make additional payments to the seller if the acquired business
meets certain earnings targets. Any additional payments will be made 20% in cash
and 80% in shares of the Company's common stock and will be accounted for as
goodwill and amortized over the remaining recovery period of the goodwill. At
March 31, 1997 an additional payment totaling approximately $207,000 was due for
earnings targets achieved through December 31, 1996. This amount was paid in May
1997, $41,000 in cash and 14,256 shares of the Company's common stock
(approximate market value on March 31, 1997 of $148,000).
Inflation
The Company believes that the relatively moderate rate of inflation over the
past few years has not had a significant impact on its sales or profitability.
The Company has in the past been able to pass on most of the increases in its
costs by increasing selling prices, although there can be no assurance that the
Company will be able to do so in the future.
9
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Forward-looking statements in this report, including without limitation,
statements relating to the adequacy of the Company's resources, are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned that such forward-looking statements
involve risks and uncertainties, including without limitation: the cyclical and
seasonal nature of housing markets; the availability of financing for
prospective purchasers of the Company's homes; the amount of capital that the
Company may commit to its Wenco 21 joint venture to make available consumer
loans; the performance of the loans held by the Company's finance subsidiary;
the availability and pricing of raw materials; the concentration of the
Company's business in certain regional markets; the Company's ability to execute
and manage its expansion plans; the availability of labor to implement those
plans; the highly competitive nature of the manufactured housing industry;
Federal, state and local regulation of the Company's business; the Company's
contingent repurchase liabilities with respect to dealer financing; the
Company's reliance on independent dealers; and other risks indicated from time
to time in the Company's filings with the Securities and Exchange Commission.
10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a defendant in a lawsuit filed on March 27, 1996 in Fulton County
Superior Court, Georgia by EurAm International, Inc., a sales agent for the
Company. On April 29, 1996 the Company removed the case to the United States
District Court for the Northern District of Georgia in Atlanta. In this lawsuit,
the plaintiff alleges that the Company has breached an agreement relating to the
sale of the Company's modular homes in Germany, including alleged
misrepresentations and faulty performance, resulting in damages alleged to
amount to $25 million. The Company believes the claim is without merit and
intends to vigorously defend the claim, but the litigation is currently in
discovery and there can be no assurances to its likely outcome.
In addition, the Company has been informed by Geselleschoft fur Bauen Und Wohnen
Hannover MbH ("GBH"), a German housing authority, that it has replaced the
Company with a local company to complete a contract that GBH had entered into
with the Company for the purchase and erection of modular housing in Hannover,
Germany. In connection with the contract, the Company posted a $660,000 letter
of credit in favor of GBH. In March 1997, GBH made a claim against the Company
for damages of approximately $800,000 arising from the shift in suppliers and
has attempted to draw upon the letter of credit posted by the Company. The
Company has obtained a temporary restraining order preventing GBH from drawing
upon the letter of credit and the Company is actively negotiating with GBH to
resolve the dispute. There can be no assurances as to the likely resolution of
the GBH claim.
The Company is a party to various other legal proceedings incidental to its
business. The majority of these legal proceedings relate to employment matters
or product warranty liability claims for which management believes adequate
reserves are maintained. In the opinion of management, after consultation with
legal counsel, the ultimate liability, if any, with respect to these proceedings
will not materially affect the financial position or results of operations of
the Company; however, the ultimate resolution of these matters, which could
occur within one year, could result in losses in excess of the amounts reserved.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits None
(b) Reports on Form 8-K None
11
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 thereunto duly authorized.
SOUTHERN ENERGY HOMES, INC.
Date: May 7, 1997 By: /s/ Wendell L. Batchelor
--------------------- --------------------------------
Wendell L. Batchelor, Chairman, President
and Chief Executive Officer
Date: May 7, 1997 By: /s/ Keith W. Brown
--------------------- ------------------
Keith W. Brown, Executive Vice President,
Chief Financial Officer, Treasurer and
Secretary
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