<PAGE> 1
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 1997
COMMISSION FILE NUMBER 0-24210
AMERICAN HOMESTAR CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 76-0070846
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
</TABLE>
2450 SOUTH SHORE BOULEVARD, SUITE 300, LEAGUE CITY, TEXAS 77573
(Address of principal executive offices, including zip code)
(281) 334-9700
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g):
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Common Stock, $0.05 par value Nasdaq National Market
</TABLE>
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
The aggregate market value of voting stock held by non-affiliates of the
registrant on August 6, 1997 (based on the last sale price on the Nasdaq
National Market as of such date) was $153,166,622. For purposes of this
disclosure only, the registrant has assumed that its directors, executive
officers and beneficial owners of 5% or more of the registrants common stock are
affiliates of the registrant.
As of August 6, 1997, the registrant had 11,430,351 shares of Common Stock
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement with respect to the 1997 annual meeting of
shareholders of the registrant are incorporated by reference into Part III of
this report.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 8
Item 3. Legal Proceedings........................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......... 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters....................................... 10
Item 6. Selected Financial Data..................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 12
Item 8. Financial Statements and Supplementary Data................. 17
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 17
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 17
Item 11. Executive Compensation...................................... 18
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 18
Item 13. Certain Relationships and Related Transactions.............. 18
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 19
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
American Homestar Corporation ("American Homestar" or the "Company") is one
of the nations leading vertically integrated manufacturing housing companies,
with operations in manufacturing, retail distribution, financing, insurance and
transportation. At May 31, 1997, the Company operated eight manufacturing plants
that sell homes through a network of 54 Company-owned retail sales centers and
approximately 300 independent retailers, fifteen of which are franchisees. At
May 31, 1997, the Company's manufacturing plants were located in Texas, North
Carolina, Oregon, Idaho, Nebraska and Mississippi, and Company-owned retail
sales centers were located in Texas, Louisiana, New Mexico, Oklahoma, Colorado
and Utah.
GROWTH STRATEGY
American Homestar is committed to long-term growth through a strategy based
on vertical integration. Management believes that the integration of
manufacturing, retailing and retail financing operations provides the Company
with a competitive advantage over many others in the industry. During fiscal
1997 and the first quarter of fiscal 1998, the Company made a number of
strategic acquisitions, the most significant of which are as follows:
- In September 1996, the Company exercised its option to acquire Guerdon
Holdings, Inc. ("Guerdon") after managing Guerdon's operations under a
management agreement since March 1996. Guerdon produces manufactured
homes in four facilities located in Oregon, Idaho, Nebraska and
Mississippi, and sells its homes to over 150 independent retailers
located in 17 states in the Pacific Northwest, Rocky Mountain and South
Central regions of the United States.
- In September 1996, the Company acquired Heartland Homes, Inc.
("Heartland"), a single plant manufacturer of low- to medium-priced homes
in North Carolina. Concurrent with the Heartland acquisition, the Company
also purchased the assets of Manu-Fac Homes, Inc. ("Manu-Fac"), a
contractually affiliated group of 15 independent retailers, which have
since become franchisees of the Company.
- In June 1997, the Company acquired Brilliant Holding Corporation
("Brilliant"), a manufacturer of single- and multi-section homes with
three plants in Alabama. Brilliant sells its homes to nearly 200
independent retailers located in 14 states.
- In June 1997, the Company acquired N.C. Mobile Home Corporation ("N.C.
Homes"), which operates 11 retail sales centers in North Carolina and one
retail sales center in Virginia.
While the Company's historical primary market area has been the Southwest,
particularly Texas and surrounding states, the Company's recent expansion has
given it a national presence with operations now encompassing the Southwest,
Pacific Northwest, Rocky Mountain, Deep South, South Central, Southeastern and
Mid-Atlantic regions of the United States. With the completion of the Brilliant
and N. C. Homes acquisitions, the Company now operates 11 manufacturing plants
and 67 Company-owned retail centers and serves over 400 independent retail
locations in 28 states.
The key elements of the Company's growth strategy over the next two years
are as follows:
- Expand the Company's Retail Distribution Base. Expanding the Company's
retail distribution base, especially in the Company's new regional
markets, is a high priority. In the first quarter of fiscal 1998, the
Company added 15 Company-owned retail sales centers, most of which are
located in the Company's new regional markets.
- Broaden and Strengthen Independent Retailer Relationships. The Company
intends to further develop its independent retail network and increase
the volume of Company-manufactured homes sold by its
1
<PAGE> 4
independent retailers. In furtherance of this strategy, the Company has
recently introduced and will aggressively market, a retail franchise
program. Relationships with independent retailers are particularly
important in new regional markets in which the Company has fewer
Company-owned retail sales centers.
- Increase the Proportion of New Homes Sold by its Retail Sales Centers
that are Manufactured by the Company. By selling homes manufactured by
the Company at Company-owned retail sales centers, the Company earns both
a retail profit and manufacturing profit on each new home sale. During
fiscal 1997, 74% of the new homes sold by Company-owned retail sales
centers were manufactured by the Company, a significant increase from 60%
in fiscal 1996 and 51% in fiscal 1995. The Company intends to continue to
increase this percentage, which is referred to as the internalization
rate.
- Expand Manufacturing Production and Capacity. The Company intends to
improve margins in its recently acquired plants to bring them up to the
levels being achieved at the Company's core Texas facilities. The Company
also intends to add a new plant in North Carolina to support its growing
retail base in the region as well as making substantial capital
improvements to increase capacity at six plants in Idaho, Oregon, North
Carolina and Alabama.
- Position 21st Century as a High-Growth Finance Company. The Company
believes that 21st Century Mortgage Corporation ("21st Century"), a 50%
owned subsidiary of the Company which offers installment mortgage
financing to purchasers of manufactured homes, represents an important
element of the Company's growth strategy and vertical integration plan,
giving the Company greater control over its business, reducing its
dependence on third-party lenders, and providing a significant source of
recurring revenues and earnings in the future. 21st Century provides
financing through all Company-owned retail sales centers and is financing
an increasing portion of the Company's business. 21st Century is also
adding to its growing loan portfolio through its own efforts to capture
re-finance business and through the formation of joint ventures with
other manufactured housing producers and retailers.
- Implement its Vertically Integrated Growth Strategy in New Regional
Markets Through Acquisitions. The Company intends to seek and evaluate
opportunities to expand its manufacturing and retail business outside its
historical market area, initially by acquiring and, in the future, by
opening new manufacturing facilities and Company-owned retail sales
centers. The recent acquisitions of Guerdon, Heartland, Brilliant and
N.C. Homes have significantly expanded the Company's operations outside
its original seven state primary market area and provide strong platforms
for future growth through vertical integration.
INDUSTRY
In 1996, the United States manufactured housing industry had estimated
retail sales of $14.0 billion. A manufactured home is a complete single-family
residence that is built in a factory and transported to a site. Manufactured
homes offer most of the amenities of, and are generally built with the same
materials as, site-built homes. Manufactured homes are produced in sections,
also referred to as "floors," and finished homes may consist of one or more
sections.
Because of the lower cost of construction compared to site-built homes,
manufactured housing has historically served as one of the most affordable
alternatives for the home buyer. According to the U.S. Department of Commerce,
in 1996 the average cost per square foot was $25.18 for a single-section
manufactured home and $29.56 for a multi-section manufactured home, as compared
to an average cost of $58.66 per square foot for a site-built home, each
excluding land costs. Manufactured homes have traditionally been an attractive
means for home buyers to overcome the obstacles of large down payments and high
monthly mortgage payments. Since the introduction of the first manufactured
homes, significant improvements in quality, design and amenities have been
developed, and attractive home sites have become increasingly available.
2
<PAGE> 5
In part due to the continuing cost advantage and improved quality and
appearance of manufactured homes, the manufactured housing industry has
consistently gained an increasing share of the overall housing market since
1992. In 1992, manufactured homes accounted for 25.7% of total new homes sold.
The percentage share of the overall new housing market represented by
manufactured homes increased to 32.4% in 1996.
Since 1991, the manufactured housing industry has experienced a significant
increase in demand. According to the Manufactured Housing Institute ("MHI"),
industry-wide domestic shipments increased from 170,713 homes in 1991 to 363,411
in 1996. The Company believes improved economic conditions, reduced inventories
of repossessed homes, greater availability of retail financing for the home
buyer and enhanced quality of manufactured homes have contributed to improved
industry conditions. Although the manufactured housing industry has experienced
consistent growth over the past five years, the industry is cyclical and is
affected by many of the same factors that influence the housing industry
generally, including inflation, interest rates, availability of financing,
regional economic and demographic conditions and consumer confidence levels, as
well as the affordability and availability of alternative housing, such as
apartments, condominiums and conventional, site-built homes.
MANUFACTURING
The Company produces a broad range of homes from traditional, lower-priced
homes to distinctive, higher-priced homes which compete with site-built homes,
and which retail from $15,000 to $109,000, excluding land costs. The Company
differentiates its products from competitors by emphasizing higher quality homes
and homes with more innovative architectural designs and features than are
typically offered in each product category.
The following table sets forth the total homes and floors manufactured by
the Company for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
----------------------
1995 1996 1997
----- ----- ------
<S> <C> <C> <C>
Homes manufactured:
Single-section............................................ 1,513 1,800 2,160
Multi-section............................................. 1,512 1,793 4,410
----- ----- ------
Total homes manufactured.................................... 3,025 3,593 6,570
===== ===== ======
Total floors manufactured................................... 4,537 5,386 11,137
===== ===== ======
</TABLE>
The Company's manufacturing facilities generally operate on a one shift per
day, five day per week basis. At May 31, 1997, the Company's facilities had the
capacity to produce 72 floors per day, and its production rate was 54 floors per
day. Capacity figures are estimates of management.
The principal materials used in the construction of the Company's homes
include lumber and lumber products, gypsum wallboard, steel, aluminum,
fiberglass, carpet, vinyl, fasteners, appliances, electrical items, windows and
doors. Generally, materials are readily available and are purchased by the
Company from numerous sources. The Company believes that the materials used in
the manufacture of its homes are readily available at competitive prices from a
wide variety of suppliers. Accordingly, the Company does not believe that the
loss of any single supplier would have a material adverse effect on its
business. The Company's direct or variable costs of operations can be
significantly affected by the availability and pricing of raw materials.
The Company generally builds a home only after a specific order has been
received and financing arrangements for payment have been made. In accordance
with industry practice, dealers can cancel orders prior to the commencement of
production without penalty, and accordingly, the Company does not consider its
backlog of orders to be firm orders. Because of the seasonality of the market
for manufactured homes, the level of backlog at any time is not necessarily
indicative of the expected level of future orders. The Company's
3
<PAGE> 6
backlog, as well as level of new orders, generally declines during the winter
months of December through February.
The Company sells the homes it manufacturers through Company-owned retail
sales centers, through franchisees in its retail franchise system, and through
independent retail sales centers in 28 states. The following table sets forth
for the periods indicated certain data for shipments of homes manufactured by
the Company, the number of Company-owned retail sales centers and the number of
independent retail sales centers, including franchisees:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
---------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Homes shipped to Company-owned retail sales centers......... 1,799 2,714 3,762
Homes shipped to independent retail sales centers, including
franchisees............................................... 1,226 879 2,808
----- ----- -----
Total homes shipped............................... 3,025 3,593 6,570
===== ===== =====
Company-owned retail sales centers.......................... 34 44 54
Independent retail sales centers............................ 103 84 348
</TABLE>
The independent retailer network is an important part of the Company's
sales and distribution strategy. Relationships are particularly important in new
regional markets in which the Company has no existing Company-owned retail sales
centers. The Company believes its relations with its independent retailers are
excellent, however, except for franchise agreements with its franchisees, the
Company has no written agreements with its independent retailers and the
relationship may be terminated at any time by either party.
The Company generally does not provide inventory financing arrangements for
independent retailer purchases, nor does it consign homes. However, as is
customary in the industry, lenders financing independent retailers require that
the Company execute repurchase agreements, which provide that, in the event of a
retailer's default under the retailer's inventory financing arrangements, the
Company will repurchase homes for the amount remaining unpaid to the lender,
excluding interest and repossession costs. During the last three fiscal years,
the Company has incurred no significant losses resulting from these contingent
obligations, however there can be no assurance that significant losses will not
occur in the future. As of May 31, 1997, the Company's contingent repurchase
liability was approximately $34.1 million.
RETAILING
The Company emphasizes high quality, multi-section homes and a professional
approach to sales, supported by extensive sales training programs. In fiscal
1997, the Company's average new home sales price of $45,902 and its proportion
of multi-section new home sales of 54% were higher than the industry averages.
Since the beginning of fiscal 1993, the Company has increased the number of
Company-owned retail sales centers from 12 to 54 as of May 31, 1997, while the
average number of new homes sales per Company-owned retail sales center has
increased from 74 in fiscal 1993 to 93 in fiscal 1997. However, the average
number of new home sales per Company-owned retail sales center decreased from 99
in fiscal 1996 to 93 in fiscal 1997. This decrease in fiscal 1997 was partially
attributable to unusually wet weather during the past winter and spring in the
South and Southwest regions of the United States as well an increased number of
retailers, particularly in Texas and surrounding states. However, average sales
revenue in fiscal 1997 per Company-owned retail sales center remained level with
fiscal 1996 as the Company increased the percentage of multi-section homes sold
in fiscal 1997 (54%) as compared to fiscal 1996 (51%). The Company plans to open
or acquire between 20 and 30 retail sales centers each year over the next two
years. In addition to selling homes manufactured by the Company, most
Company-owned retail sales centers sell homes manufactured by other companies as
well as previously-owned manufactured homes.
4
<PAGE> 7
The following table sets forth for the periods indicated certain
information relating to homes sold by Company-owned retail sales centers:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
---------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Average new home sales price:............................. $40,041 $43,460 $45,902
Homes sold:
New homes............................................... 3,127 3,887 4,506
Previously-owned homes.................................. 738 1,058 1,314
Percentage of new homes sold:
Single-section.......................................... 54% 49% 46%
Multi-section........................................... 46% 51% 54%
Percentage of new homes sold manufactured by:
Company................................................. 51% 60% 74%
Independent manufacturers............................... 49% 40% 26%
</TABLE>
The Company has increased the percentage of new homes sold by Company-owned
retail sales centers that are manufactured by the Company from 23% in fiscal
1993 to 74% in fiscal 1997. As the Company's manufacturing facilities continue
to increase their production, the Company intends to increase this percentage.
The Company emphasizes the image and professionalism of its sales
representatives and has developed an extensive professional sales training
program to support these representatives. The Company believes that its general
approach to marketing, the appearance of its sales locations and the
professionalism of its sales management and staff are among its most
distinguishing features in the marketplace.
RETAIL FINANCING AND INSURANCE OPERATIONS
American Homestar believes 21st Century represents an important element of
its growth strategy and vertical integration plan, giving the Company greater
control over its business and providing a significant source of recurring
revenues and earnings in the future. The Company formed 21st Century together
with Clayton Homes, Inc. ("Clayton"), a leader in manufactured home financing,
and three former executive officers of Clayton and its finance subsidiary,
Vanderbilt Mortgage and Finance, Inc. ("Vanderbilt"). American Homestar, Clayton
and the management of 21st Century own 50%, 25% and 25%, respectively, of 21st
Century, and the Company has an option to purchase the stock owned by Clayton
and the management of 21st Century after September 15, 2000. As part of
Clayton's investment in 21st Century, Vanderbilt agreed to purchase 21st Century
loans under a warehouse credit facility and use its best efforts to include such
purchased loans in its securitized financings. In addition, Clayton has granted
21st Century a license to use Clayton's proprietary manufactured home financing
software. Ford Consumer Finance Company, Inc. ("Ford") has agreed to purchase,
and 21st Century has agreed to offer for purchase, at least $35 million of
qualified retail installment contracts originated by 21st Century in each of the
next two years.
21st Century provides financing through all of the Company-owned retail
sales centers and is financing an increasing portion of the Company's retail
installment sales business (50% in fiscal 1997). 21st Century is also adding to
its growing portfolio through its own efforts to capture re-finance business and
through the formation of financing joint ventures with other manufactured
housing producers and retailers. The Company believes the extensive experience
of the 21st Century management team and 21st Century's strategic relationships
with Clayton and Ford will enable 21st Century to grow at a faster rate, with
lower capital requirements and with a lower cost of funds than other start-up
financing operations for manufactured housing.
The Company believes its other financial service products also represent a
significant opportunity for the Company to develop additional sources of
recurring revenue from each home sale. Through its wholly-owned subsidiary,
Western Insurance Agency, Inc. ("Western"), the Company offers retail customers,
through both its Company-owned retail sales centers and certain independent
retailers, a variety of insurance products, including property/casualty
insurance, credit life insurance and extended service contracts. The Company
acts
5
<PAGE> 8
as agent and earns commissions for insurance written for purchasers of its
manufactured homes. In addition, the Company's wholly-owned subsidiary, Lifestar
Reinsurance, Ltd. ("Lifestar"), reinsures credit life policies placed by
Western. By reinsuring such policies, the Company earns underwriting fees and
investment income as well as normal sales commissions. The Company has the
obligation to reimburse the insurance carrier for credit life insurance claims.
TRANSPORTATION
The Company has a 51% equity ownership interest in Roadmasters Transport
Company, Inc. ("Roadmasters"), a manufactured housing transportation company
with full interstate authority and intrastate transportation authority in
twenty-four states. In addition, Brilliant Carriers, Inc. ("Carriers"), a
wholly-owned subsidiary of recently acquired Brilliant, is also a manufactured
housing transportation company with full interstate authority and Alabama
intrastate transportation authority. Manufactured housing transportation
requires specially designed and equipped truck tractors. Roadmasters and
Carriers lease its equipment from independent owner-operators, which allows them
to cover a large geographic area without a significant investment in equipment.
Roadmasters is the primary transporter of manufactured homes from the
Company's manufacturing facilities to Company-owned retail sales centers and
serves other manufacturers and independent retailers as well. Carriers is the
primary transporter of manufactured homes from Brilliant's manufacturing
facilities to independent retailers. In fiscal 1997, Roadmasters derived
approximately 26% of its revenues from the Company's manufacturing operations
and approximately 74% of its revenues from other manufacturers and outside
sources. Roadmasters is one of the largest transporters of manufactured homes in
the Southwest. Carriers derives all of its revenues from Brilliant. The Company
believes that its controlling ownership interests in Roadmasters and Carriers
provide it with the ability to better control the delivery of homes to its
retail sales centers and to independent retailers, especially during peak sales
and delivery periods, as well as to profit from each home shipment.
SIGNIFICANT SUPPLIERS
In fiscal 1995, fiscal 1996 and fiscal 1997, Redman Homes, Inc. ("Redman")
supplied approximately 27%, 26% and 18%, respectively, of the homes sold by
Company-owned retail sales centers. The Company's supply relationship with
Redman is terminable at will by either party. While the Company believes that it
can replace any independent manufacturer, by substituting its own products and
the products of other manufacturers, any such loss could have an adverse effect
on the Company's results of operations.
COMPETITION
The manufactured housing industry is highly competitive and the capital
requirements for entry are relatively small. Manufactured homes compete with new
and existing site-built homes, apartments, townhouses and condominiums.
Competition exists at both the manufacturing and retail levels and is based
primarily on price, product features, reputation for service and quality, depth
of field inventory, sales promotions, merchandising, and terms and availability
of dealer and retail customer financing. Some of the Company's competitors have
substantially greater financial, manufacturing, distribution and marketing
resources than the Company. Some of these competitors manufacture homes sold by
Company-owned retail sales centers. The Company's sales to independent retailers
could be adversely affected if such competitors purchased independent retailers
and substituted other manufactured homes for homes manufactured by the Company.
In addition, the Company's retail sales could be adversely affected, at least in
the short-term, if such competitors curtailed supplying the Company with homes
for retail sale. While the Company believes mortgage and personal property
financing have generally become more available to the manufactured housing
industry in recent years, a contraction in consumer credit could provide an
advantage to those competitors with substantial capital resources.
6
<PAGE> 9
GOVERNMENT REGULATION
The Company's manufactured homes are subject to a number of federal, state
and local laws and codes. Construction of manufactured homes is governed by the
National Manufactured Home Construction and Safety Standards Act of 1974 ("MHCSS
Act") and the regulations issued by the Department of Housing and Urban
Development ("HUD") thereunder, establishing comprehensive national construction
standards. These regulations cover all aspects of manufactured home
construction, including structural integrity, fire safety, wind loads, thermal
protection and ventilation. The Company's manufacturing facilities and the plans
and specifications of its manufactured homes have been approved by a
HUD-designated inspection agency. The Company's homes are regularly checked by
an independent, HUD-approved inspector for compliance during construction.
Failure to comply with applicable HUD regulations could expose the Company to a
wide variety of sanctions, including mandated closings of Company manufacturing
facilities. The Company believes its manufactured homes meet or surpass all
present HUD requirements.
Manufactured, modular and site-built homes are all typically built with
particle board, paneling and other products that contain various formaldehyde
resins. HUD regulates the allowable concentration of formaldehyde in certain
products used in manufactured homes and requires warnings to purchasers
concerning formaldehyde-associated risks. Certain components of manufactured
homes are subject to regulation by the Consumer Products Safety Commission
("CPSC"), which is empowered to ban the use of component materials believed to
be hazardous to health and to require the manufacturer to repair defects in
components of its homes. The CPSC, the Environmental Protection Agency and other
governmental agencies currently are re-evaluating the allowable standards for
formaldehyde emissions. The Company currently uses materials in its manufactured
homes that meet the current HUD standards for formaldehyde emissions and
believes that it otherwise complies with HUD and other applicable government
regulations in this regard.
The Company's operations are also subject to the provisions of the Texas
Manufactured Housing Act, the Consumer Credit Act and the Truth-in-Lending Act,
as well as local zoning and housing regulations. A number of states require
manufactured home producers and retailers to post bonds to ensure the
satisfaction of consumer warranty claims. A number of states have adopted
procedures governing the installation of manufactured homes. Utility connections
are subject to state and local regulation and must be complied with by the
dealer or other person installing the home. The operations of Roadmasters and
Western are subject to regulation by various federal, state and local
authorities.
A variety of laws affect the financing of manufactured homes by the
Company. The Truth-in-Lending Act and Regulation Z promulgated thereunder
require written disclosure of information relating to such financing, including
the amount of the annual percentage rate and financing charge. The Fair Credit
Act also requires certain disclosures to potential customers concerning credit
information used as a basis to deny credit. The Federal Equal Credit Opportunity
Act and Regulation B promulgated thereunder prohibit discrimination against any
credit applicant based on certain specified grounds. The Federal Trade
Commission has adopted or proposed various trade regulation rules dealing with
unfair credit and collection practices and the preservation on consumers' claims
and defenses. The Federal Trade Commission regulations also require disclosure
of a manufactured home's insulation specification. Installment sales contracts
eligible for inclusion in the Government National Mortgage Association Program
are subject to the credit underwriting requirements of the Federal Housing
Administration. A variety of state laws also regulate the form of installment
sales contracts and the allowable charges pursuant to installment sales
contracts. The sale of insurance products by the Company is subject to various
state insurance laws and regulations which govern allowable charges and other
insurance products.
The Company is also subject to the provisions of the Fair Debt Collection
Practices Act, which regulates the manner in which the Company collects payments
on installment sale contracts, and the Magnuson-Moss Warranty -- Federal Trade
Commission Improvement Act, which regulates the descriptions of warranties on
products. The Company's collection activities and warranties are also subject to
state laws and regulations.
The transportation of manufactured homes on highways is subject to
regulation by various federal, state and local authorities. Such regulations may
prescribe size and road use limitations and impose lower than
7
<PAGE> 10
normal speed limits and various other requirements. Manufactured homes are also
subject to local zoning and housing regulations.
The Company's operations are also subject to federal, state and local laws
and regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. The Company is
not aware of any pending litigation to which it is a party or claims that may
result in significant contingent liabilities related to environmental pollution
or asbestos. In addition, the Company does not believe it will be required under
existing environmental laws and enforcement policies to expend amounts that will
have a material adverse effect on its results of operations or financial
condition.
A significant portion of the Company's manufacturing labor force includes
persons who are not U.S. citizens, and the Company is subject to the regulations
of the Immigration and Naturalization Service ("INS"). The Company adheres to
the procedures required for the prevention of the hiring of illegal aliens, but,
nonetheless, the Company has from time to time experienced losses of a portion
of its labor force due to INS investigative operations, which losses have
temporarily decreased production at the affected manufacturing facilities.
In general, legislation is proposed from time to time that, if enacted,
would significantly affect the regulatory climate for manufactured and modular
homes. At present, it is not possible to predict what, if any, changes or
legislation may be adopted or the effect any such changes or legislation may
have on the Company or the manufactured housing industry as a whole.
EMPLOYEES
As of May 31, 1997, the Company employed 2,661 persons. The Company does
not have any collective bargaining agreements and has not experienced any work
stoppages as a result of labor disputes. The Company considers it employee
relations to be good.
A significant portion of the total compensation of management of the
Company is derived from incentive bonuses based on the operating income of the
operating unit for which such management is responsible, as well as the
attainment of margin goals. Many of the Company's managers are also shareholders
and all are eligible to participate in the Company's 1994 Stock Compensation
Plan
ITEM 2. PROPERTIES
At May 31, 1997, the Company operated eight manufacturing facilities, 54
retail sales centers and had two administrative offices. Forty-seven of the
retail sales centers and both administrative offices are leased. The Company's
retail sales centers consist of tracts of land, ranging from 2.5 to 7.0 acres,
on which manufactured homes are displayed, each with a sales office containing
approximately 2,000 square feet of office space. The Company's retail sales
centers are located in six states as follows: Texas (39), Louisiana (5), New
Mexico (3), Colorado (4), Oklahoma (2) and Utah (1). The Company believes that
all facilities are adequately maintained and suitable for their present use.
The Company owns all of its manufacturing facilities and substantially all
of its manufacturing equipment, fixtures, furniture and office equipment. The
following table sets forth certain information with respect to the Company's
manufacturing facilities:
<TABLE>
<CAPTION>
DATE OPENED OR BUILDING
LOCATION ACQUIRED SQUARE FEET
-------- -------------- -----------
<S> <C> <C>
Burleson, Texas......................................... May 1993 94,500
Fort Worth, Texas....................................... June 1985 137,000
Lancaster, Texas........................................ December 1992 86,600
Henderson, North Carolina............................... September 1996 70,000
Boise, Idaho............................................ September 1996 90,100
Stayton, Oregon......................................... September 1996 97,500
Gering, Nebraska........................................ September 1996 73,000
Vicksburg, Mississippi.................................. September 1996 118,700
</TABLE>
8
<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in routine litigation arising in the ordinary
course of business. In the opinion of the Company, such matters would not have a
material adverse affect on the financial condition or the results of operations
of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
MANAGEMENT
EXECUTIVE OFFICERS
Set forth below are the names, ages and positions of the executive officers
and key managers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Finis F. Teeter(1).............. 53 Chairman of the Board and Co-Chief Executive Officer
Laurence A. Dawson, Jr.(1)...... 53 President, Co-Chief Executive Officer and Director
Craig A. Reynolds............... 48 Executive Vice-President, Chief Financial Officer,
Secretary and Director
Jackie H. Holland............... 50 Vice President, Treasurer and Director
Charles N. Carney, Jr. ......... 42 Vice President and Director
James J. Fallon................. 57 Vice President and Director
Timothy W. Williams............. 41 President and Co-Chairman of the Board of 21st
Century
Richard B. Ray.................. 56 Chief Financial Officer and Co-Chairman of the Board
of 21st Century
</TABLE>
- ---------------
(1) Member of the Executive Committee.
Finis F. Teeter is a founder of the Company and served as its Chairman of
the Board and Chief Executive Officer from 1971 until August 1993. Since August
1993, Mr. Teeter has served as its Chairman of the Board and Co-Chief Executive
Officer. Prior to forming the Company, Mr. Teeter served in various sales and
sales management capacities with Teeter Mobile Homes from 1962 to 1969 and with
Mobile Home Industries from 1969 to late 1970.
Laurence A. Dawson, Jr. has served as President, Co-Chief Executive Officer
and as a Director of the Company since August 1993. Mr. Dawson served as Chief
Executive Officer and Chairman of the Board of Oak Creek Homes, Inc. ("Oak
Creek") from its founding in 1983 until August 31, 1993. Mr. Dawson served as
Executive Vice President -- Chief Operating Officer and in other executive
positions with Kaufman & Broad Home Systems, Inc. from 1972 to 1983. Mr. Dawson
is a director of the Manufactured Housing Institute and the Texas Manufactured
Housing Association. Mr. Dawson holds a Master of Business Administration degree
from Harvard University.
Craig A. Reynolds has served as Executive Vice President, Chief Financial
Officer and Secretary of the Company since joining the Company in 1982, and has
been a Director of the Company since 1985. Mr. Reynolds is a certified public
accountant and holds a Master of Business Administration degree from Florida
Institute of Technology.
Jackie H. Holland has served as Vice President, Treasurer and as a Director
of the Company since August 1993. Mr. Holland has served as Vice President and
Chief Financial Officer of Oak Creek since 1989. Before joining Oak Creek, Mr.
Holland held various financial and general management positions with Palm
9
<PAGE> 12
Harbor Homes, Inc. from 1978 to 1989 and Redman Homes, Inc. from 1970 to 1978.
Mr. Holland holds a Bachelor of Science in Accounting degree from the University
of North Alabama.
Charles N. Carney, Jr. has served as Vice President of the Company since
June 1993 and as President of the Retail Division of the Company since 1987. He
has served as a Director of the Company since August 1993. Mr. Carney has served
in various sales, sales management and senior sales management capacities with
the Company since joining its predecessor in 1977. Mr. Carney holds a Bachelor
of Business Administration degree from Eastern Kentucky University.
James J. Fallon has served as Vice President and as a Director of the
Company since August 31, 1993 and as President of Oak Creek since December 1993.
Prior to that time, Mr. Fallon served in various general management capacities
with Kaufman & Broad Home Systems, Inc. and Fleetwood Homes, Inc. Mr. Fallon
holds a Bachelor of Science in Electrical Engineering from Purdue University.
Timothy W. Williams has served as the President and Co-Chairman of the
Board of 21st Century since its organization in September 1995. Mr. Williams
served as Executive Vice President of Clayton Homes, Inc. from 1983 until
September 1995; as President of Vanderbilt Mortgage and Finance, Inc. from
February 1993 until September 1995; and as Executive Vice President of
Vanderbilt from 1982 to February 1993. Mr. Williams holds a Masters of Business
Administration degree from the University of Tennessee.
Richard B. Ray has served as the Chief Financial Officer and Co-Chairman of
the Board of 21st Century since its organization in September 1995. Mr. Ray
served as Executive Vice President and Chief Financial Officer of Clayton Homes,
Inc. from 1982 until August 1994. Mr. Ray is a certified public accountant and
holds a Bachelor of Science degree from the University of Tennessee. Mr. Ray
served as a director of Palm Harbor Homes, Inc. from October 1994 until
September 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's common stock is quoted on the Nasdaq National Market under
the symbol "HSTR." The following table sets forth, for the periods indicated,
the high and low sales price per share of the Company's common stock as reported
on the Nasdaq National Market. The following share prices have been adjusted to
reflect the 5-for-4 stock splits effected on January 18, 1996 and February 7,
1997.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR ENDED MAY 31, 1996:
First quarter............................................. $10.00 $ 6.88
Second quarter............................................ 12.80 8.88
Third quarter............................................. 14.72 10.80
Fourth quarter............................................ 19.60 11.80
FISCAL YEAR ENDED MAY 31, 1997:
First quarter............................................. $22.10 $12.80
Second quarter............................................ 20.40 14.60
Third quarter............................................. 18.75 13.00
Fourth quarter............................................ 20.75 15.00
</TABLE>
As of August 6, 1997, there were 188 record holders of the Company's common
stock. On August 6, 1997, the reported last sale price of the Company's common
stock as reported by the Nasdaq National Market was $21 1/8 per share.
10
<PAGE> 13
DIVIDEND POLICY
The Company has not paid any dividends on the common stock since it became
a public reporting company. The Company does not anticipate paying cash
dividends on the common stock in the foreseeable future and intends to continue
its present policy of retaining earnings for reinvestment in the operations of
the Company. The terms of certain indebtedness of the Company restrict its
ability to pay dividends or make distributions.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company for
the periods indicated. The financial information for each of the five fiscal
years ended May 31, 1997 was derived from the Company's audited financial
statements. The selected financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes included in Item 8 of
this Form 10-K.
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
---------------------------------------------------
1993 1994 1995 1996 1997
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Net sales.................................. $45,153 $109,077 $171,342 $208,745 $313,674
Other revenues............................. 4,219 10,174 16,311 22,487 26,305
------- -------- -------- -------- --------
Total revenues..................... 49,372 119,251 187,653 231,232 339,979
------- -------- -------- -------- --------
Costs and expenses:
Cost of sales.............................. 35,288 87,473 133,001 154,575 233,346
Selling, general and administrative........ 11,502 24,271 40,910 57,185 77,260
------- -------- -------- -------- --------
Total costs and expenses........... 46,790 111,744 173,911 211,760 310,606
------- -------- -------- -------- --------
Operating income................... 2,582 7,507 13,742 19,472 29,373
Interest expense............................. (797) (1,383) (1,795) (2,972) (4,714)
Other income................................. 263 169 171 219 178
------- -------- -------- -------- --------
Income before items shown below............ 2,048 6,293 12,118 16,719 24,837
Income tax expense........................... 747 2,481 4,726 6,601 10,101
------- -------- -------- -------- --------
Income before items shown below............ 1,301 3,812 7,392 10,118 14,736
Earnings (loss) in affiliate(1)(2)........... (456) (89) -- (65) 271
Minority interests(3)........................ (670) (254) (204) (297) (315)
------- -------- -------- -------- --------
Income before items shown below............ 175 3,469 7,188 9,756 14,692
Extraordinary item(4)........................ 172 -- -- -- --
Cumulative effect of a change in accounting
for income taxes........................... -- 219 -- -- --
------- -------- -------- -------- --------
Net income......................... $ 347 $ 3,688 $ 7,188 $ 9,756 $ 14,692
======= ======== ======== ======== ========
Earnings per share(5).............. $ 0.13 $ 0.67 $ 0.79 $ 0.98 $ 1.31
======= ======== ======== ======== ========
BALANCE SHEET DATA (END OF YEAR):
Working capital.............................. $ 2,235 $ 6,419 $ 19,380 $ 38,644 $ 23,426
Total assets................................. 23,430 50,986 78,138 109,201 193,301
Long-term debt............................... 1,448 3,133 1,159 3,663 22,519
Shareholders' equity......................... 2,553 10,209 31,311 58,014 73,215
</TABLE>
See following page for Footnotes to Selected Financial Data.
11
<PAGE> 14
FOOTNOTES TO SELECTED FINANCIAL DATA
(1) In October 1992, the Company and Oak Creek formed a new venture (the
"Homestar Venture") to start-up and operate two manufacturing facilities
(the Lancaster and Burleson, Texas facilities). The Company owned a 40%
economic interest in the Homestar Venture prior to the combination of the
Company, Oak Creek and the Homestar Venture in August 1993 (the
"Combination"). The Homestar Venture incurred losses in commencing
operations of these two manufacturing facilities. Prior to the Combination,
the Company accounted for its interest in the Homestar Venture under the
equity method as "loss in affiliate." Such losses included in the Company's
historical financial statements in fiscal 1993 and fiscal 1994 were $456,000
and $89,000, respectively.
(2) Represents the Company's proportionate share of 21st Century's earnings
(losses) in fiscal 1996 and fiscal 1997.
(3) Since the Combination and through May 31, 1997, the Company owns 100% of all
of its subsidiaries except Roadmasters, of which it owns 51% and 21st
Century, of which it owns 50%. The Company's interest in 21st Century is
accounted for as provided in footnote (2) above.
(4) Utilization of net operating loss carryforward.
(5) Earnings per common share have been adjusted to reflect the 5-for-4 stock
splits effected on January 18, 1996 and February 7, 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-K contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company's
management as well as assumptions made by and information currently available to
the Company's management. When used in this document, the words "anticipate,"
"believe," "estimate," "should," and "expect" and similar expressions as they
relate to the Company or management of the Company are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions, including the risk factors described in the
Company's most recently filed registration statement. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated or expected. The Company does not intend to
update these forward-looking statements.
GENERAL
In fiscal 1993, in response to growing demand for manufactured homes, the
Company began developing its expansion and vertical integration plan by opening
nine new retail sales centers and entering into a new venture (the "Homestar
Venture") with Oak Creek Homes, Inc. ("Oak Creek"), a long-time supplier, to
start-up and operate two manufacturing facilities. The costs associated with the
start-up of two new manufacturing facilities and the new retail sales centers
had an adverse effect on the Company's operating results in the second half of
fiscal 1993 and in the first half of fiscal 1994. By October 1993, both
manufacturing facilities had become profitable.
Effective August 31, 1993, a combination was consummated with the
shareholders of Oak Creek exchanging their shares of Oak Creek common stock for
shares of the Company's common stock (the "Combination"). In connection with the
Combination, all of the retail sales management personnel and manufacturing
management personnel exchanged their shares of common stock in the Company's
subsidiaries for shares of the Company's common stock.
In September 1995, the Company formed 21st Century to originate, finance,
sell and service manufactured housing sales contracts from the Company and third
parties. 21st Century is managed by two former executive officers of Clayton and
its finance subsidiary, Vanderbilt. The Company, Clayton and management of 21st
Century own 50%, 25% and 25%, respectively, of the equity capital of 21st
Century. 21st Century commenced operations in October 1995. The Company accounts
for its investment in 21st Century using the
12
<PAGE> 15
equity method of accounting, showing its proportionate share of 21st Century's
earnings or losses as "earnings or loss in affiliate."
In September 1996, the Company exercised its option to acquire Guerdon
after managing Guerdon's operations under a management agreement since March
1996. Guerdon produces manufactured homes in four facilities located in Oregon,
Idaho, Nebraska and Mississippi and sells its homes to over 150 independent
retailers located in 17 states in the Pacific Northwest, Rocky Mountain and
South Central regions of the United States.
In September 1996, the Company acquired Heartland, a single plant
manufacturer of low- to medium-priced homes in North Carolina. Concurrent with
the Heartland acquisition, the Company also purchased the assets of Manu-Fac, a
contractually affiliated group of 15 independent retailers, which have since
become franchisees of the Company.
VERTICAL INTEGRATION AND INTERNALIZATION
Several elements of the Company's growth strategy are based on an
increasing degree of vertical integration over time. By combining its retail and
manufacturing operations in fiscal 1994 and then developing transportation,
insurance and finance subsidiaries, the Company potentially benefits from
multiple income sources as the result of each retail sale. Increasing the degree
of vertical integration will affect the Company's revenues and margins in two
important ways:
- Several elements of the Company's growth strategy center on increasing
the rate of "internalization" of its retail sales (i.e., the proportion
of new homes sold by Company-owned retail sales centers that are
manufactured by the Company). This strategy enables the Company to earn
both a manufacturing profit and a retailing profit on those home sales;
however, only retail sales revenue is recognized. Accordingly, increasing
the internalization rate (without otherwise affecting the Company's level
of manufacturing and retailing activity) has the effect of increasing
gross margins and reducing reported revenues; however, aggregate gross
profit (in dollars) is not materially affected by changes in the
internalization rate.
- Another key element of the Company's growth strategy is to increase the
degree of retail penetration of its financial services. As insurance
product penetration increases, both reported revenues and earnings should
increase without a corresponding increase in retail unit sales.
Similarly, as 21st Century finances more of the Company's retail sales,
the Company's earnings should increase without a corresponding increase
in retail unit sales.
The recent acquisitions of Heartland, Guerdon and Brilliant will have the
effect of adding significant revenues to the Company with little, if any,
immediate benefit from vertical integration. Those benefits should reflect
gradually, over time, as the Company executes its vertical integration strategy
in the new regional markets which these acquisitions encompass.
13
<PAGE> 16
RESULTS OF OPERATIONS
The following table summarizes certain operating data for the Company for
the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Company-manufactured new homes sold at retail........ 1,586 2,344 3,319
Total new homes sold at retail....................... 3,127 3,887 4,506
Internalization rate(1).............................. 51% 60% 74%
Previously-owned homes sold at retail................ 738 1,058 1,314
Average number of new homes sold per retail sale
center............................................. 109 99 93
Average retail selling price -- new homes............ $40,041 $43,460 $45,902
Number of retail sales centers at end of period...... 34 44 54
Manufacturing shipments.............................. 3,025 3,593 6,570
Manufacturing shipments to independent retailers..... 1,226 879 2,808
</TABLE>
- ---------------
(1) The internalization rate is the proportion of new homes sold by
Company-owned retail sales centers that are manufactured by the Company.
The following table summarizes the Company's historical operating results,
expressed as a percentage of revenues, for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Total revenues......................................... 100.0% 100.0% 100.0%
Gross profit........................................... 29.1% 33.2% 31.4%
Selling, general and administrative expenses........... 21.8% 24.7% 22.7%
Operating income....................................... 7.3% 8.4% 8.6%
Net income............................................. 3.8% 4.2% 4.3%
</TABLE>
YEAR ENDED MAY 31, 1997 COMPARED TO THE YEAR ENDED MAY 31, 1996
Net Sales. Net sales of manufactured homes were $313.7 million in fiscal
1997, an increase of 50% from $208.7 million in fiscal 1996. Sales from the
Company's newly acquired manufacturing operations were $72.6 million in fiscal
1997. On a basis comparable to fiscal 1996, net sales increased 16% to $241.1
million. This increase was primarily the result of an 18% increase in the number
of new and previously-owned homes sold at retail as well as a 6% increase in the
average selling price of new homes. The decline in the average new homes sold
per retail sales center from 99 in fiscal 1996 to 93 in fiscal 1997 was
attributable to unusually wet weather conditions during the past winter and
spring in the South and Southwest Regions of the United States, which delayed
the opening of several retail sales centers from the Company's third quarter to
the fourth quarter, as well as an increase in the number of retailers operating
in Texas and surrounding states. However, average sales revenue in fiscal 1997
per retail sales center remained level with fiscal 1996 as the Company increased
the percentage of multi-section homes sold in fiscal 1997 (54%) as compared to
fiscal 1996 (51%).
Other Revenues. Transportation revenues for fiscal 1997 were $13.6 million,
an increase of 14% from $11.9 million in fiscal 1996. This increase was
primarily due to an increase in transportation activity in response to generally
higher demand for transportation services. Other revenues increased 20% to $12.7
million in fiscal 1997 compared to $10.5 million in fiscal 1996. This increase
was primarily due to an increase in insurance commissions and premiums generated
by the Company's insurance operations as well as revenue associated with the
Company's franchising operations acquired in connection with the purchase of
Manu-Fac in September 1996.
Cost of Sales. Cost of manufactured homes sold were $222.1 million (70.8%
of net sales) in fiscal 1997, as compared to $144.7 million (69.3% of net sales)
in fiscal 1996. Cost of manufactured homes attributable to
14
<PAGE> 17
the newly acquired manufacturing operations for fiscal 1997 were $60.1 million.
On a basis comparable to fiscal 1996, cost of manufactured homes increased 12%
to $162.0 million (67.2% of net sales) from $144.7 million (69.3% of net sales).
The decrease in cost of manufactured homes, expressed as percentage of net
sales, was the result of an increase in the internalization rate from 60% in
fiscal 1996 to 74% in fiscal 1997 as well as increased operating efficiencies at
the Company's three Texas manufacturing facilities. Cost of sales attributable
to transportation operations for fiscal 1997 was $11.2 million (82.3% of
transportation revenues), an increase of 13% from $9.9 million (82.7% of
transportation revenues) in fiscal 1996. This increase was due to increased
business activity.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in fiscal 1997 were $77.3 million (22.7% of total
revenues), compared to $57.2 million (24.7% of total revenues) in fiscal 1996.
Selling, general and administrative expenses attributable to the Company's newly
acquired operations were $9.6 million in fiscal 1997. On a basis comparable to
fiscal 1996, selling, general and administrative expenses were $67.7 million
(25.3% of total revenues) in fiscal 1997 as compared to $57.2 million (24.7% of
total revenues) in fiscal 1996. The increase in selling, general and
administrative expenses was attributable to increased sales, manufacturing,
transportation and insurance activities as well as an increase in fixed costs
and expenses associated with new Company-owned retail sales centers and expanded
manufacturing capacity. The increase in selling, general and administrative
expenses, expressed as a percentage of total revenues, was the result of an
increase in the internalization rate from 60% in fiscal 1996 to 74% in fiscal
1997. This increase was partially offset by a decrease in warranty expenses,
expressed as a percentage of total revenues.
Interest Expense. Interest expense increased 59% to $4.7 million in fiscal
1997 from $3.0 million in fiscal 1996. The increase was due to increased
borrowings of $25 million under a credit facility established with Bank One,
Texas N.A., which was used to fund the Company's growth strategy as well as fund
its acquisition of Guerdon, and an increase in floor plan debt used to support
higher levels of inventory due to the opening of new retail sales centers.
YEAR ENDED MAY 31, 1996 COMPARED TO THE YEAR ENDED MAY 31, 1995
Net Sales. Net sales of manufactured homes were $208.7 million in fiscal
1996, an increase from $171.3 million in fiscal 1995. This increase was
primarily the result of a 28% increase in the number of new and previously-owned
homes sold at retail as well as a 9% increase in the average selling price of
new homes. The Company added ten new retail sales centers during fiscal 1996 in
response to continuing increases in demand for new manufactured homes in Texas
and surrounding states. The decline in the average new homes sold per retail
sales center was primarily attributable to a temporary change in lending
practices (among the Company's outside retail lenders) arising from the
Company's announcement of the formation of its own lending affiliate, 21st
Century, in September 1995. To a lesser degree, average new home sales per
retail sales center were also affected by a change in sales mix with a higher
proportion of multi-section homes and by certain retail management changes in
September 1995.
Total manufacturing shipments for fiscal 1996 increased 19% from fiscal
1995. Consistent with the Company's vertical integration plan, however,
shipments to independent dealers declined by 28%, as more Company-manufactured
homes were directed to Company-owned retail sales centers.
Other Revenues. Transportation revenues for fiscal 1996 were $11.9 million,
an increase of 18% from $10.1 million in fiscal 1995. This increase was
primarily due to an increase in transportation activity in response to generally
higher demand for transportation services. Other revenues increased 70% to $10.5
million in fiscal 1996 compared to $6.2 million in fiscal 1995. This increase
was primarily due to an increase in insurance commission income as the result of
increased home sales and increased financing participations from certain
independent lenders.
Cost of Sales. Cost of manufactured homes sold were $144.7 million (69.3%
of net sales) in fiscal 1996, as compared to $124.6 million (72.7% of net sales)
in fiscal 1995. The increase in cost of sales was primarily due to higher sales
volume. The significant decrease in cost of sales, expressed as a percentage of
sales, was primarily due to greater internalization of retail sales and
increased operating efficiencies in the Company's manufacturing plants. Cost of
sales attributable to transportation operations for fiscal 1996 was $9.9 million
15
<PAGE> 18
(82.7% of transportation revenues), an increase of 17% from $8.4 million (83.3%
of transportation revenues) in fiscal 1995. This increase was due to increased
business activity.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in fiscal 1996 were $57.2 million (24.7% of total
revenues), compared to $40.9 million (21.8% of total revenues) in fiscal 1995.
The increase in selling, general and administrative expenses was primarily
attributable to increased sales, manufacturing, transportation and insurance
activities as well as an increase in fixed costs and expenses associated with
ten new Company-owned retail sales centers, the Company's new credit life
reinsurance company, which commenced operations in March 1995, and expanded
manufacturing capacity. The increase in selling, general and administrative
expenses, expressed as a percentage of total revenues, was primarily the result
of an increase in the internalization rate, fixed costs of new Company-owned
retail sales centers that had not yet reached normal operating efficiency,
increased warranty and service expenses, increased advertising and the addition
of administrative personnel in response to significant increases in business
activity.
Interest Expense. Interest expense increased 66% to $3.0 million in fiscal
1996 from $1.8 million in fiscal 1995. The increase was primarily due to an
increase in floor plan indebtedness throughout most of the fiscal year to
support a higher level of sales and inventory and the addition of $2.7 million
in long-term debt in June 1995 used to finance the purchase of two manufacturing
plants and one retail sales center, all formerly under lease by the Company.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations of $550,000 in fiscal 1997 decreased from $8.9
million in fiscal 1996. Net income before depreciation and amortization was
offset by substantial increases in inventory required to open new Company-owned
retail sales centers. An important part of the Company's growth strategy is to
expand the number of Company-owned retail sales centers and increase its
manufacturing production. Management estimates the capital required to open a
new retail sales center to be approximately $1.0 million to $1.25 million,
primarily for inventory and working capital. Management currently plans to open
or acquire 20 to 30 retail sales centers each year for the next two years and,
in connection therewith, will use cash to purchase inventory and operating
assets and for working capital purposes. Management expects increased cash
generated by Company-owned retail sales centers and manufacturing operations to
substantially fund the working capital required to open new Company-owned retail
sales centers.
In fiscal 1997, the Company paid approximately $10.6 million in cash, net
of cash acquired, to purchase Guerdon, Heartland, certain operating assets of
Manu-Fac and three retail sales centers. Total tangible assets purchased were
$23.8 million with total liabilities assumed of $43.6 million, giving rise to
$30.4 million in goodwill. In addition, the Company had capital expenditures of
$10.9 million and $8.6 million in fiscal 1997 and fiscal 1996, respectively. In
fiscal 1997, the Company financed $4.5 million to acquire five manufacturing
plants formerly under lease by the Company. The remaining expenditures were used
primarily to fund new Company-owned retail sales centers and additions to
manufacturing capacity.
At May 31, 1997, the Company had a $100.0 million floor plan credit
facility with Ford Consumer Finance Company, Inc. ("Ford") with an interest rate
at prime. The facility is similar to a revolving credit facility and is used to
finance the purchase of inventory of new homes at Company-owned retail sales
centers. In order to satisfy greater working capital requirements and to fund
capital expenditures in connection with the Company's expanding operations, the
Company increased its gross borrowings under the facility by $17.8 million in
fiscal 1997. At May 31, 1997, the Company had net borrowings under the credit
facility of $46.3 million (gross borrowings of $66.7 million, less
participations of $20.4 million). The Company's participations in its floor plan
credit facility earn interest at the lender's prime rate less .375% and are
immediately available to the Company in cash. Beginning in July 1997, amounts
available to the Company under the Ford credit facility were increased to $125
million. Amounts outstanding under this credit facility will bear interest at
prime less 0.50% with the Company's participations in such credit facility
earning interest at prime less 0.75%.
On July 15, 1997, the Company completed the private placement of $61
million of 8.32% senior unsecured notes with an average life of 7.5 years and a
final maturity in July 2007 (the "Senior Notes"). The Company used the net
proceeds to repay approximately $25 million in existing secured bank debt and
16
<PAGE> 19
approximately $6 million in secured debt of its recently acquired subsidiary,
Brilliant Holding Corporation. The remainder of the proceeds will be used to
temporarily reduce borrowings under the Company's floor plan credit facility
with Ford.
Total funded debt, including floor plan, expressed as a percentage of
equity, increased from 41% at May 31, 1996, to 101% at May 31, 1997, principally
the result of acquisitions of manufacturing facilities in several new market
regions. As the Company continues to explore strategic acquisition opportunities
in new regions, the Company's leverage may further increase. Management believes
that the proceeds from the Senior Notes, when coupled with the Company's
increased floor plan facility and cash provided by operations, will be
sufficient to satisfy working capital and capital expenditure requirements over
the next two years.
INFLATION AND SEASONALITY
Inflation in recent years has been modest and has primarily affected the
Company's manufacturing costs in the areas of labor, manufacturing overhead and
raw materials other than lumber. The price of lumber is affected more by the
imbalances between 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 products, improving its manufacturing
efficiency and increasing its employee productivity. In addition, the Company's
business is seasonal, with weakest demand typically occurring during the
Company's third fiscal quarter (December through February) and the strongest
demand typically occurring during the Company's last fiscal quarter (March
through May). Over the history of the Company's operations, management has not
observed any correlation between interest rate fluctuations and increases or
decreases in sales based solely on such fluctuations.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") was issued. SFAS 128 replaces Accounting
Principles Board Opinion No. 15, "Earnings Per Share" ("APB 15") and specifies
the computation, presentation and disclosure requirements for earnings per share
("EPS"). SFAS 128 replaces the presentation of primary EPS under APB 15 with
basic EPS and fully diluted EPS under APB 15 with diluted EPS. The Company does
not believe the adoption of SFAS 128 in fiscal 1998 will have a significant
impact on reported earnings per share.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is listed under Item 14 (a) and
begins at F-1 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the directors of the Company is set forth in the
proxy statement to be delivered to shareholders in connection with the Company's
Annual Meeting of Shareholders to be held on October 2, 1997 (the "Proxy
Statement") under the heading "Election of Directors," which information is
incorporated herein by reference. The name, age and position of each executive
officer of the Company is set forth under the heading "Management -- Executive
Officers" in Part I of this report. The information concerning disclosure of
delinquent Form 3, 4 or 5 filers is set forth in the Proxy Statement under the
heading "Section 16 Requirements," which information is incorporated herein by
reference.
17
<PAGE> 20
ITEM 11. EXECUTIVE COMPENSATION
The information concerning executive compensation is set forth in the Proxy
Statement under the heading "Executive Compensation," which information is
incorporated herein by reference. Information contained in the Proxy Statement
under the caption "Executive Compensation -- Report of the Board of Directors on
Executive Compensation and -- Stock Performance Chart" is not incorporated by
reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information concerning security ownership of certain beneficial owners
and management is set forth in the Proxy Statement under the heading "Principal
Shareholders and Management Ownership," which information is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information concerning certain relationships and related transactions
is set forth in the Proxy Statement under the heading "Certain Transactions,"
which information is incorporated herein by reference.
18
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets as of May 31, 1996 and 1997
Consolidated Statements of Operations for the years ended May 31, 1995,
1996 and 1997
Consolidated Statements of Shareholders' Equity for the years ended May 31,
1995, 1996 and 1997
Consolidated Statements of Cash Flows for the years ended May 31, 1995,
1996 and 1997
Notes to the Consolidated Financial Statements
(2) Supplementary Schedule to Financial Statements
Schedule II -- Valuation and Qualifying Accounts
(3) Exhibits
The exhibits filed as part of this report are listed under "Exhibits" at
subsection (c) of Item 14
(b) Reports on Form 8-K
No report on Form 8-K was filed on behalf of the Company during the last
quarter of the Company's 1997 fiscal year
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT REPORT WITH WHICH
NO. DESCRIPTION EXHIBIT WAS FILED
------- ----------- -----------------
<S> <C> <C>
2.1 -- Securities Purchase Agreement by and among Brilliant July 1997, Form 8-K/A
Holding Corporation (Brilliant), the Brilliant
Securityholders and American Homestar Corporation.
2.2 -- First Amendment to the Securities Purchase Agreement by July 1997, Form 8-K/A
and among Brilliant, the Brilliant Securityholders and
American Homestar Corporation.
2.3 -- Agreement and Plan of Merger between American Homestar Filed herewith
Corporation, Nationwide N.C. Homes, Inc., N.C. Mobile
Home Corp., and Robert H. Sauls.
3.1 -- Restated Articles of Incorporation of American Homestar S-1 Registration Statement
Corporation. No. 33-78630
3.2 -- Amended and Restated Bylaws of American Homestar S-1 Registration Statement
Corporation. No. 33-78630
4.1 -- Form of certificate evidencing ownership of Common Stock S-1 Registration Statement
of American Homestar Corporation. No. 33-78630
4.2 -- Shareholders Agreement, dated as of August 31, 1993, by S-1 Registration Statement
and among American Homestar Corporation and certain No. 33-78630
shareholders of American Homestar Corporation.
4.3 -- Form of Amendment to Shareholders Agreement. S-1 Registration Statement
No. 33-78630
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT REPORT WITH WHICH
NO. DESCRIPTION EXHIBIT WAS FILED
------- ----------- -----------------
<C> <S> <C>
10.1 -- Loan Agreement, dated September 24, 1996, among American February 1997, Form 10-Q
Homestar Corporation, Oak Creek Housing Corporation,
Nationwide Housing Systems, Inc., American Homestar
Financial Services, Inc., Heartland Homes, Inc., Guerdon
Homes, Inc., American Homestar of Burleson, Inc.,
American Homestar of Lancaster, Inc. and Bank One, Texas,
N.A.
10.2 -- $2,100,000 Term Promissory Note, dated September 24, February 1997, Form 10-Q
1996, by and between American Homestar Corporation, Oak
Creek Housing Corporation and Bank One, Texas, N.A.
10.3 -- $4,600,000 Term Promissory Note, dated September 24, February 1997, Form 10-Q
1996, by and between American Homestar Corporation, Oak
Creek Housing Corporation and Bank One, Texas, N.A.
10.4 -- $11,300,000 Term Promissory Note, dated September 24, February 1997, Form 10-Q
1996, by and between American Homestar Corporation, Oak
Creek Housing Corporation and Bank One, Texas, N.A.
10.5 -- $7,000,000 Term Promissory Note, dated September 24, February 1997, Form 10-Q
1996, by and between American Homestar Corporation, Oak
Creek Housing Corporation and Bank One, Texas, N.A.
10.6 -- Employment Agreement, dated as of November 15, 1996, February 1997, Form 10-Q
between Finis F. Teeter and American Homestar
Corporation.
10.7 -- Employment Agreement, dated as of November 15, 1996, February 1997, Form 10-Q
between Laurence A. Dawson, Jr. and American Homestar
Corporation.
10.8 -- Nonqualified Stock Option Agreement, dated November 15, February 1997, Form 10-Q
1996 between Finis F. Teeter and American Homestar
Corporation.
10.9 -- Nonqualified Stock Option Agreement, dated November 15, February 1997, Form 10-Q
1996 between Laurence A. Dawson, Jr. and American
Homestar Corporation.
10.10 -- Amendment to Life Reinsurance Contract, dated December February 1997, Form 10-Q
31, 1996, by and between Lifestar Reinsurance Limited and
American Bankers Life Assurance Company of Florida
10.11 -- Amendment to Ford Finance Company, Inc. Inventory November 1996, Form 10-Q
Financing Agreement
11 -- Statement Re Computation of Per Share Earnings Filed herewith
12 -- None
13 -- None
16 -- None
18 -- None
21 -- List of Subsidiaries Filed herewith
22 -- None
23 -- Consent of KPMG Peat Marwick LLP Filed herewith
24 -- None
27 -- Financial Data Schedule Filed herewith
99 -- None
</TABLE>
20
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN HOMESTAR CORPORATION
Date: August 27, 1997 By: /s/ LAURENCE A. DAWSON, JR.
----------------------------------
Laurence A. Dawson, Jr., President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ FINIS F. TEETER Chairman of the Board and August 27, 1997
- ----------------------------------------------------- Co-Chief Executive Officer
Finis F. Teeter (Principal Executive Officer)
/s/ LAURENCE A. DAWSON, JR. President, Co-Chief Executive August 27, 1997
- ----------------------------------------------------- Officer and Director
Laurence A. Dawson, Jr. (Principal Executive Officer)
/s/ CRAIG A. REYNOLDS Executive Vice President, Chief August 27, 1997
- ----------------------------------------------------- Financial Officer, Secretary
Craig A. Reynolds and Director (Principal
Financial and Accounting
Officer)
/s/ JACKIE H. HOLLAND Vice President, Treasurer and August 27, 1997
- ----------------------------------------------------- Director
Jackie H. Holland
/s/ CHARLES N. CARNEY JR. Vice President and Director August 27, 1997
- -----------------------------------------------------
Charles N. Carney, Jr.
/s/ JAMES J. FALLON Vice President and Director August 27, 1997
- -----------------------------------------------------
James J. Fallon
/s/ WILLIAM O. HUNT Director August 27, 1997
- -----------------------------------------------------
William O. Hunt
/s/ JACK L. MCDONALD Director August 27, 1997
- -----------------------------------------------------
Jack L. McDonald
</TABLE>
21
<PAGE> 24
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of May 31, 1996 and 1997..... F-3
Consolidated Statements of Operations for the years ended
May 31, 1995, 1996 and 1997............................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended May 31, 1995, 1996
and 1997.................................................. F-5
Consolidated Statements of Cash Flows for the years ended
May 31, 1995, 1996 and 1997............................... F-6
Notes to Consolidated Financial Statements.................. F-7
Financial Statement Schedule II -- Valuation and Qualifying
Accounts.................................................. F-23
</TABLE>
F-1
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
The Board of Directors
American Homestar Corporation:
We have audited the consolidated financial statements of American Homestar
Corporation and subsidiaries as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we have also audited
the financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Homestar Corporation and subsidiaries as of May 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended May 31, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG PEAT MARWICK LLP
Houston, Texas
June 26, 1997
F-2
<PAGE> 26
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MAY 31,
----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash...................................................... $ 12,178,000 $ 17,161,000
Cash in transit from financial institutions............... 22,148,000 26,139,000
------------ ------------
Total cash and cash equivalents................... 34,326,000 43,300,000
Inventories............................................... 35,363,000 55,398,000
Accounts receivable....................................... 5,229,000 11,314,000
Manufacturer incentives receivable........................ 1,143,000 1,073,000
Deferred tax assets....................................... 1,068,000 3,749,000
Prepaid expenses and other current assets................. 4,625,000 5,121,000
------------ ------------
Total current assets.............................. 81,754,000 119,955,000
Property, plant and equipment, net.......................... 19,569,000 39,270,000
Goodwill.................................................... -- 29,949,000
Investment in affiliate..................................... 2,435,000 2,706,000
Note receivable............................................. 3,000,000 --
Other assets................................................ 2,443,000 1,421,000
------------ ------------
$109,201,000 $193,301,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable............................................. $ 263,000 $ 5,454,000
Floor plan payable........................................ 19,886,000 46,282,000
Accounts payable.......................................... 10,924,000 20,228,000
Accrued expenses.......................................... 10,587,000 19,934,000
Accrued warranty costs.................................... 1,450,000 4,631,000
------------ ------------
Total current liabilities......................... 43,110,000 96,529,000
------------ ------------
Notes payable, less current installments.................... 3,663,000 22,519,000
Reserve for future policy benefits.......................... 3,358,000 --
Deferred tax liabilities.................................... 346,000 72,000
Minority interest in consolidated subsidiary................ 710,000 966,000
Shareholders' equity:
Preferred stock, no par value; authorized 5,000,000
shares; no shares issued............................... -- --
Common stock, $0.05 par value; authorized 20,000,000
shares; issued and outstanding 10,771,554 and
10,823,084 shares at May 31, 1996 and 1997,
respectively........................................... 539,000 541,000
Additional paid-in capital................................ 36,004,000 36,511,000
Retained earnings......................................... 21,471,000 36,163,000
------------ ------------
Total shareholders' equity........................ 58,014,000 73,215,000
Commitments and contingencies
------------ ------------
$109,201,000 $193,301,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 27
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Net sales........................................ $171,342,000 $208,745,000 $313,674,000
Other revenues................................... 16,311,000 22,487,000 26,305,000
------------ ------------ ------------
Total revenues........................... 187,653,000 231,232,000 339,979,000
------------ ------------ ------------
Costs and expenses:
Cost of sales.................................... 133,001,000 154,575,000 233,346,000
Selling, general and administrative.............. 40,910,000 57,185,000 77,260,000
------------ ------------ ------------
Total costs and expenses................. 173,911,000 211,760,000 310,606,000
------------ ------------ ------------
Operating income......................... 13,742,000 19,472,000 29,373,000
Interest expense................................... (1,795,000) (2,972,000) (4,714,000)
Other income....................................... 171,000 219,000 178,000
------------ ------------ ------------
Income before items shown below.................. 12,118,000 16,719,000 24,837,000
Income tax expense................................. 4,726,000 6,601,000 10,101,000
------------ ------------ ------------
Income before items shown below.................. 7,392,000 10,118,000 14,736,000
Earnings (loss) in affiliate....................... -- (65,000) 271,000
Minority interest in income of consolidated
subsidiary....................................... (204,000) (297,000) (315,000)
------------ ------------ ------------
Net income............................... $ 7,188,000 $ 9,756,000 $ 14,692,000
============ ============ ============
Earnings per share:
Primary.......................................... $ 0.79 $ .98 $ 1.31
============ ============ ============
Fully diluted.................................... $ 0.78 $ .97 $ 1.30
============ ============ ============
</TABLE>
See accompany notes to consolidated financial statements.
F-4
<PAGE> 28
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
-------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCES AT MAY 31, 1994................. $315,000 $ 5,367,000 $ 4,527,000 $10,209,000
Proceeds from initial public offering.... 156,000 13,753,000 -- 13,909,000
Purchase of stock pool interest.......... -- (75,000) -- (75,000)
Repurchase of common stock............... -- (4,000) -- (4,000)
Compensation related to sale of
common stock........................... -- 61,000 -- 61,000
Repayment of loans....................... -- 23,000 -- 23,000
Net income............................... -- -- 7,188,000 7,188,000
-------- ----------- ----------- -----------
BALANCES AT MAY 31, 1995................. 471,000 19,125,000 11,715,000 31,311,000
Proceeds from public offering............ 67,000 16,835,000 -- 16,902,000
Exercise of stock options................ 1,000 45,000 -- 46,000
Purchase of stock pool interest.......... -- (51,000) -- (51,000)
Compensation related to sale of
common stock........................... -- 60,000 -- 60,000
Repurchase of common stock............... -- (10,000) -- (10,000)
Net income............................... -- -- 9,756,000 9,756,000
-------- ----------- ----------- -----------
BALANCES AT MAY 31, 1996................. 539,000 36,004,000 21,471,000 58,014,000
Exercise of stock options................ 2,000 489,000 -- 491,000
Compensation related to sale of
common stock........................... -- 23,000 -- 23,000
Other.................................... -- (5,000) -- (5,000)
Net income............................... -- -- 14,692,000 14,692,000
-------- ----------- ----------- -----------
BALANCES AT MAY 31, 1997................. $541,000 $36,511,000 $36,163,000 $73,215,000
======== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 29
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
--------------------------------------------
1995 1996 1997
------------ ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 7,188,000 $ 9,756,000 $ 14,692,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization............... 724,000 1,527,000 3,416,000
Minority interests in income of consolidated
subsidiary................................ 204,000 297,000 315,000
Loss on disposal of property and
equipment................................. -- 24,000 --
Compensation expense on sale of common
stock..................................... 61,000 60,000 23,000
Loss (gain) in affiliate.................... -- 65,000 (271,000)
Deferred taxes.............................. (429,000) 174,000 (179,000)
Change in assets and liabilities, net of
acquisitions:
Increase in receivables................... (948,000) (2,162,000) (982,000)
Increase in inventories................... (13,106,000) (5,365,000) (15,106,000)
Increase (decrease) in prepaid expenses
and other current assets............... (663,000) (1,036,000) 51,000
Decrease (increase) in other assets....... (357,000) (1,624,000) 946,000
Increase in accounts payable.............. 2,233,000 2,317,000 3,891,000
Increase (decrease) in accrued expenses... 3,474,000 2,215,000 (2,888,000)
Increase (decrease) in other
liabilities............................ 664,000 2,694,000 (3,358,000)
------------ ------------- -------------
Net cash provided by (used in)
operating activities................. (955,000) 8,942,000 550,000
------------ ------------- -------------
Cash flows from investing activities:
Payment for purchase of acquisitions, net of
cash acquired............................... -- -- (10,628,000)
Purchases of property, plant and equipment..... (6,977,000) (6,560,000) (6,364,000)
Investment in mortgage affiliate............... -- (2,500,000) --
Note receivable................................ -- (3,000,000) --
Proceeds from sales of property, plant
and equipment............................... 5,000 -- --
------------ ------------- -------------
Net cash used in investing
activities........................... (6,972,000) (12,060,000) (16,992,000)
------------ ------------- -------------
Cash flows from financing activities:
Proceeds from public offering of common
stock....................................... 13,909,000 16,902,000 --
Participation in floor plan payable............ (15,082,000) (14,009,000) 8,637,000
Borrowings under floor plan payable............ 103,859,000 125,466,000 154,864,000
Repayments of floor plan payable............... (86,755,000) (117,487,000) (137,105,000)
Proceeds from long-term debt borrowings........ -- 955,000 20,568,000
Principal payments of long-term debt........... (2,547,000) (326,000) (21,976,000)
Exercise of stock options...................... -- 46,000 491,000
Purchase of common stock and interest in
stock pool.................................. (79,000) (61,000) --
Other.......................................... 23,000 (108,000) (63,000)
------------ ------------- -------------
Net cash provided by financing
activities........................... 13,328,000 11,378,000 25,416,000
------------ ------------- -------------
Net increase in cash and cash equivalents........ 5,401,000 8,260,000 8,974,000
Cash and cash equivalents at beginning of year... 20,665,000 26,066,000 34,326,000
------------ ------------- -------------
Cash and cash equivalents at end of year......... $ 26,066,000 $ 34,326,000 $ 43,300,000
============ ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 30
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and General
The consolidated financial statements include the accounts of American
Homestar Corporation and its majority-owned subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation.
The Company owns 50% of the outstanding common stock of 21st Century
Mortgage Corporation ("21st Century") which is accounted for under the equity
method of accounting.
Nature of Operations
The Company is a vertically integrated manufactured housing company. The
Company manufactures a wide variety of manufactured homes from its eight
manufacturing facilities which are sold through 54 Company-owned retail sales
centers in Texas, Louisiana, New Mexico, Oklahoma, Colorado and Utah as well as
a network of independent dealers. In addition, the Company offers installment
financing to purchasers of manufactured homes from its retail sales centers. The
Company also offers retail customers, through both its Company-owned retail
sales centers and certain independent retailers, a variety of insurance
products, including property casualty insurance, credit life insurance and
extended warranty coverage.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
Revenue Recognition
Retail sales are recognized when cash payment is received, or in the case
of credit sales (which represent the majority of the Company's retail sales),
when a down payment is received and the Company and the customer enter into an
installment sales contract. The Company manufactures its homes based on dealer
orders; sales to independent dealers are recognized as revenue when title
transfers to the buyer, which is the date of shipment. Almost all the Company's
sales to dealers are financed through the dealer's floor plan financing
arrangements. Dealers are not permitted to cancel purchases without penalty once
the manufacturing process commences.
The Company also maintains used manufactured home inventory owned by
outside parties for which the Company receives a sales commission when sold to
consumers.
Premiums from credit life insurance policies reinsured by the Company's
credit life subsidiary, Lifestar Reinsurance, Ltd. ("Lifestar"), are recognized
as revenue over the life of the policy term. Premiums are ceded to Lifestar on
an earned basis.
Inventories
Newly manufactured homes are valued at the lower of cost or market, using
the specific identification method. Used manufactured homes are valued at
estimated wholesale prices, not in excess of net realizable value.
Raw materials are valued at the lower of cost or market, using the
first-in, first-out method.
F-7
<PAGE> 31
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation on
property, plant and equipment is provided by the straight-line method over the
estimated useful lives of the related assets. Leasehold improvements are
amortized using the straight-line method over the useful lives of the
improvements or lease periods, whichever is shorter.
Goodwill
Goodwill, which represents the excess of purchase price over the fair value
of net assets acquired, is amortized on a straight-line basis over periods
ranging from 10 to 40 years. The Company assesses the recoverability of goodwill
by determining whether the amortization of the goodwill balance over the
remaining useful life can be recovered through undiscounted future operating
cash flows of the acquired operations.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
included the enactment date.
Reserves for Future Losses on Credit Sales
The Company makes a current provision for estimated future losses on credit
retail sales where the Company retains risk in the event of customer nonpayment
of installment sales contracts. Typically, the Company's period of exposure to
loss does not exceed three installment payments (60 days) on an individual
contract. The amounts provided for estimated future losses on credit sales are
determined based on the Company's historical loss experience after giving
consideration to current economic conditions. Management, in assessing current
loss experience and economic conditions, may adjust the reserve for losses on
credit sales related to prior years' installment sales contracts. All
adjustments are recognized currently.
Accrued Warranty and Service Costs
The Company makes a current provision for future service costs associated
with homes sold and for manufacturing defects for a period of one year from the
date of sale of the home. The estimated cost of these items is accrued at the
time of sale and is reflected in selling, general and administrative expenses in
the consolidated statements of operations. For the years ended May 31, 1995,
1996 and 1997, warranty and service costs were $5,900,000, $8,000,000 and
$10,859,000, respectively.
Reserves for Contingent Repurchase Agreements
Reserves for contingent repurchase agreements are established for losses
based on the Company's historical loss experience, and actual losses are charged
to the reserve when incurred. Management, in assessing the loss experience,
adjusts the reserves through periodic provisions. The Company has not incurred
losses related to contingent repurchases for the years ended May 31, 1995, 1996
and 1997.
Earnings per Common Share
Earnings per common share are computed based on the weighted average number
of common shares outstanding during the periods presented after giving
retroactive effect to the changes in capital structure discussed in note 9.
Weighted average shares are adjusted for common stock equivalents when dilutive
and significant. Computations for primary earnings per share were based on
9,130,302 (1995), 9,932,470 (1996),
F-8
<PAGE> 32
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and 11,235,294 (1997) weighted average shares. Computations for fully diluted
earnings per share were based on 9,167,073 (1995), 10,107,862 (1996), and
11,314,704 (1997) weighted average shares.
Financial Instruments
Fair value estimates are made at discrete points in time based on relevant
market information. These estimates may be subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. The Company believes that the carrying amounts of its
current assets, current liabilities and long-term debt approximate the fair
value of such items.
Cash Equivalents
Cash equivalents consist of short-term investments with an original
maturity of three months or less, money market accounts and cash in transit from
financial institutions. Cash in transit from financial institutions present no
risk to the Company regarding collectibility and are collected within 90 days.
In addition, the Company has never experienced a loss because of a failure to
collect amounts due from these financial institutions. Approximately 95% of the
cash in transit from financial institutions balance at May 31, 1997 is due from
three lenders, of which 67% is due from the Company's mortgage affiliate, 21st
Century.
Recent Accounting Pronouncements
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") was issued. SFAS 128 replaces Accounting
Principles Board Opinion No. 15, "Earnings Per Share" ("APB 15") and specifies
the computation, presentation and disclosure requirements for earnings per share
("EPS"). SFAS 128 replaces the presentation of primary EPS under APB 15 with
basic EPS and fully diluted EPS under APB 15 with diluted EPS. The Company does
not believe the adoption of SFAS 128 in fiscal 1998 will have a significant
impact on reported earnings per share.
Reclassifications
Certain prior years' amounts have been reclassified to conform to
classifications used in 1997.
(2) PUBLIC OFFERING
On April 2, 1996, the Company completed a public offering of 2,156,250
shares of common stock at $13.60 per share (adjusted for the 5-for-4 stock split
discussed in note 9). Of the shares offered, 1,337,500 shares were sold by the
Company and 818,750 shares were sold by certain shareholders of the Company. Net
proceeds of $17,120,000 (before offering expenses) from the offering were used
by the Company to fund its growth strategy. Supplementary earnings per share
would be $0.77 and $0.96 per share for the years ended May 31, 1995 and 1996,
respectively, based on 10,467,802 and 11,050,708 shares outstanding,
respectively. Supplementary earnings per share is calculated as if the public
offering occurred on June 1, 1994.
On July 12, 1994, the Company completed an initial public offering of
3,125,000 shares of common stock at $5.12 per share (adjusted for the 5-for-4
stock splits described in note 9). The net proceeds were used to expand its
manufacturing capacity and repay long-term debt and a portion of its floor plan
credit facility (see note 6).
F-9
<PAGE> 33
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) ACQUISITIONS
On September 3, 1996, the Company acquired all of the common stock of
Heartland Homes, Inc. ("Heartland") and certain operating assets of Manu-Fac
Homes, Inc. ("Manu-Fac") for a combination of cash and notes totaling $8.5
million. Heartland is a single-plant manufactured housing producer in Henderson,
North Carolina. Heartland markets its homes through 65 independent retailers in
North Carolina and three surrounding states. Manu-Fac was a contractually
affiliated group of independent retailers throughout North Carolina, operating
under the CHOICENTER or WESTWOOD Homes trade names. In connection with the
acquisition of such assets of Manu-Fac, these retailers became franchisees of
Associated Retailers Group, Inc., a wholly-owned subsidiary of the Company, and
continue to operate under the CHOICENTER or WESTWOOD trade names. The results of
the acquired operations of Heartland and Manu-Fac have been included with those
of the Company from the date of acquisition. The excess purchase price over the
estimated fair value of net assets acquired as of the acquisition date of $6.2
million has been recorded as goodwill and is being amortized over 25 years. The
estimated fair value of assets acquired and liabilities assumed in these
acquisitions is summarized as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 2,628,000
Property, plant and equipment............................... 3,030,000
Goodwill.................................................... 6,201,000
Current liabilities......................................... (2,906,000)
Notes payable............................................... (189,000)
-----------
$ 8,764,000
===========
Consideration:
Cash...................................................... $ 6,530,000
Notes payable............................................. 2,000,000
Transaction costs......................................... 234,000
-----------
$ 8,764,000
===========
</TABLE>
F-10
<PAGE> 34
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On September 24, 1996, the Company completed the acquisition of Guerdon
Holdings, Inc. and its subsidiary, Guerdon Homes, Inc. (collectively "Guerdon").
Guerdon produces manufactured homes in four facilities located in Oregon, Idaho,
Nebraska and Mississippi, and sells its homes through approximately 150
independent retailers located primarily in the Pacific Northwest, Rocky
Mountain, and South Central regions of the United States. The results of the
acquired operations of Guerdon have been included with those of the Company from
the date of the acquisition. The excess purchase price over the estimated fair
value of the net assets acquired as of the acquisition date of $23.9 million has
been recorded as goodwill and is being amortized over 40 years. The estimated
fair value of assets acquired and liabilities assumed in this acquisition is
summarized as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 6,699,000
Property, plant and equipment............................... 8,551,000
Goodwill.................................................... 23,880,000
Deferred taxes.............................................. 2,777,000
Current liabilities......................................... (17,843,000)
Notes payable............................................... (22,722,000)
------------
$ 1,342,000
============
Consideration:
Cash...................................................... $ 620,000
Transaction costs......................................... 722,000
------------
$ 1,342,000
============
</TABLE>
Unaudited pro forma results of operations of the Company for the years
ended May 31, 1996 and 1997, assuming the Guerdon, Heartland and Manu-Fac
acquisitions had been consummated at June 1, 1995, is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Revenues................................................ $351,388,000 $377,518,000
Operating income........................................ 18,623,000 29,719,000
Income before taxes..................................... 12,757,000 24,390,000
Net income.............................................. 7,112,000 14,146,000
Earnings per common share............................... $ 0.72 $ 1.26
============ ============
</TABLE>
On June 10, 1997, the Company completed the acquisition of Brilliant
Holding Corporation ("Brilliant"), which produces manufactured homes from three
plants in Alabama. Brilliant currently markets its homes through nearly 200
independent retailers in 12 states across the South Central, Deep South,
Southeastern and Mid-Atlantic regions of the United States. The Company issued
474,099 shares of common stock and options to purchase 25,901 shares of the
Company's common stock in exchange for all of Brilliant's outstanding common
stock and options to purchase Brilliant's common stock. The merger will be
accounted for as a pooling of interests.
On June 19, 1997, the Company completed the acquisition of N.C. Mobile Home
Corporation, which operates 11 retail centers in North Carolina and one in
Virginia. Consideration for the purchase was 117,647 shares of the Company's
common stock and $2.5 million in cash and notes. The final determination of the
purchase price, which is subject to certain performance targets, will be made in
August 1997.
F-11
<PAGE> 35
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) INVENTORIES
A summary of inventories follows:
<TABLE>
<CAPTION>
MAY 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Manufactured homes:
New..................................................... $29,818,000 $41,229,000
Used.................................................... 1,878,000 4,715,000
Furniture and supplies.................................... 1,505,000 3,374,000
Raw materials and work-in-process......................... 2,162,000 6,080,000
----------- -----------
$35,363,000 $55,398,000
=========== ===========
</TABLE>
Substantially all the Company's new and used manufactured homes were
pledged as collateral against its floor plan credit facility (see note 6).
(5) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows:
<TABLE>
<CAPTION>
MAY 31,
USEFUL -------------------------
LIVES 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
Land........................................... -- $ 3,670,000 $ 4,711,000
Land improvements.............................. 15 years 1,278,000 1,448,000
Buildings...................................... 5-30 years 9,107,000 17,291,000
Machinery and equipment........................ 5-10 years 2,877,000 4,834,000
Furniture and equipment........................ 5 years 2,455,000 4,174,000
Vehicles....................................... 3 years 41,000 434,000
Leasehold improvements......................... 5-13 years 3,294,000 9,542,000
Construction in progress....................... -- 120,000 49,000
----------- -----------
22,842,000 42,483,000
Assets to be disposed of....................... -- -- 3,263,000
Less accumulated depreciation and
amortization................................. (3,273,000) (6,476,000)
----------- -----------
$19,569,000 $39,270,000
=========== ===========
</TABLE>
The Company intends to sell two manufacturing facilities acquired in
connection with the Guerdon acquisition (see note 2). The facilities, which are
idle and not being utilized, are recorded at their estimated fair value less
estimated costs to sell the facilities. Although it is the Company's intention
to dispose of the facilities within one year, there can be no assurance that the
Company's efforts will be successful. Consequently, the carrying values of these
facilities are classified as long-term in Company's consolidated balance sheet
and "Assets to be Disposed Of" in accordance with SFAS 121.
(6) NOTES AND FLOOR PLAN PAYABLE
The Company has a $100 million floor plan credit facility with Ford
Consumer Finance Company ("Ford") to finance a major portion of its manufactured
home inventory until such inventory is sold and contract proceeds are received.
Interest on amounts borrowed is at prime (8.50% at May 31, 1997). The floor plan
debt is secured by a portion of the Company's manufactured home inventory and
cash in transit from financial institutions. The Company's participations in its
floor plan credit facilities earn interest at prime less
F-12
<PAGE> 36
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
0.375%. The Company may increase or decrease the participation at any time and
may require Ford to re-purchase all of its participation.
Amounts due under the floor plan credit facility follows:
<TABLE>
<CAPTION>
MAY 31,
----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Floor plan payable...................................... $ 48,976,000 $ 66,735,000
Participations in floor plan payable.................... (29,090,000) (20,453,000)
------------ ------------
Net floor plan payable................................ $ 19,886,000 $ 46,282,000
============ ============
</TABLE>
In July 1997, amounts available under this floor plan credit facility were
increased to $125.0 million. Amounts outstanding under the credit facility will
bear interest at prime less 0.50% with the Company's participations in the
credit facility earning interest at prime less 0.75%.
F-13
<PAGE> 37
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of notes payable follows:
<TABLE>
<CAPTION>
MAY 31,
-------------------------
1996 1997
---------- -----------
<S> <C> <C>
Note payable to a financial institution in monthly
installments of $188,334, plus interest at LIBOR plus 2%
(7.66% at May 31, 1997), due February 28, 2002. Paid in
full on July 15, 1997..................................... $ -- $10,358,000
Note payable to a financial institution in monthly
installments of $38,889, plus interest at LIBOR plus 2%
(7.57% at May 31, 1997), due February 28, 2002. Paid in
full on July 15, 1997..................................... -- 6,806,000
Note payable to a financial institution in monthly
installments of $104,762 through December 1997 and $54,762
thereafter, plus interest at LIBOR plus 2% (7.66% at May
31, 1997), due February 28, 2002; secured by property,
plant and equipment. Paid in full on July 15, 1997........ -- 4,112,000
Notes payable to a financial institution in quarterly
installments of $45,334, plus interest at 8.57%, due April
1, 2000; secured by property, plant and equipment. Paid in
full on July 15, 1997..................................... 2,584,000 2,403,000
Note payable to a financial institution in monthly
installments of $11,667, plus interest at LIBOR plus 2%
(7.66% at May 31, 1997), due February 28, 2002; secured by
property, plant and equipment. Paid in full on July 15,
1997...................................................... -- 2,018,000
Notes payable, $750,000 due on September 3, 1997 with
quarterly installments of $187,500 thereafter, plus
interest at 8.5%.......................................... -- 1,500,000
Note payable due September 3, 1997, plus interest at 8.5%... -- 250,000
Note payable to financial institution in monthly
installments of $9,557 including interest at prime plus
1.5% (9.75% at May 31, 1996), due March 1999; secured by
land and building. Paid in full on September 25, 1996..... 853,000 --
Note payable to a bank in monthly installments of $3,429,
including interest, at 10% through July 2001; secured by
land...................................................... 168,000 138,000
Notes payable in monthly installments of $1,686, including
interest at 10.5% due May 2002; secured by land........... 89,000 77,000
Note payable in monthly installments of $1,934, including
interest at 10% due November, 2010; secured by land....... 177,000 171,000
Other....................................................... 55,000 140,000
---------- -----------
Total............................................. 3,926,000 27,973,000
Less current installments................................... 263,000 5,454,000
---------- -----------
Notes payable, less current installments.................. $3,663,000 $22,519,000
========== ===========
</TABLE>
The aggregate maturities of notes payable for each of the five years
subsequent to May 31, 1997 follow:
<TABLE>
<S> <C>
1998.................................................... $ 5,454,000
1999.................................................... 4,158,000
2000.................................................... 3,791,000
2001.................................................... 5,471,000
2002.................................................... 8,943,000
Thereafter.............................................. 156,000
-----------
$27,973,000
===========
</TABLE>
F-14
<PAGE> 38
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On July 15, 1997, the Company completed the private placement of $61
million of 8.32% senior unsecured notes with an average life of 7.5 years and a
final maturity in July 2007. The Company used the net proceeds from this new
debt to repay approximately $25 million in existing secured bank indebtedness
and approximately $6 million in secured debt of its recently acquired
subsidiary, Brilliant Holding Corporation (see note 3). The remainder of the
proceeds will be used to temporarily reduce borrowings under the Company's floor
plan credit facility.
(7) INCOME TAXES
The provision for income taxes related to operations in the consolidated
statements of operations is summarized below:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-------------------------------------
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Federal-current expense......................... $4,484,000 $5,528,000 $ 8,835,000
Federal-deferred expense (benefit).............. (371,000) 149,000 (158,000)
State-current expense........................... 671,000 899,000 1,445,000
State-deferred expense (benefit)................ (58,000) 25,000 (21,000)
---------- ---------- -----------
Total................................. $4,726,000 $6,601,000 $10,101,000
========== ========== ===========
</TABLE>
The Company files a consolidated return for federal tax purposes;
accordingly, taxes at statutory rates are computed based on earnings before
minority interests. The provision for income taxes related to operations varied
from the amount computed by applying the U.S. federal statutory rate as a result
of the following:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-------------------------------------
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Computed "expected" tax expense................. $4,120,000 $5,852,000 $ 8,693,000
State income tax, net of federal tax benefit.... 404,000 600,000 926,000
Nondeductible goodwill.......................... -- -- 148,000
Effect of graduated tax rates................... -- (145,000) --
Other, net...................................... 202,000 294,000 334,000
---------- ---------- -----------
Total................................. $4,726,000 $6,601,000 $10,101,000
========== ========== ===========
</TABLE>
F-15
<PAGE> 39
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
MAY 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Current deferred taxes:
Inventory costs capitalized for tax purposes.............. $ 73,000 $ 214,000
Amounts not deductible until paid......................... 899,000 3,417,000
Other..................................................... 96,000 118,000
---------- ----------
Current deferred tax assets............................ $1,068,000 $3,749,000
========== ==========
Noncurrent deferred taxes:
Noncurrent deferred tax assets:
Plant and equipment, principally due to differences in
depreciation and estimated costs to dispose of
manufacturing facilities (see note 5)................ $ -- $ 235,000
Noncurrent deferred tax liabilities:
Goodwill............................................... -- (307,000)
Plant and equipment, principally due to differences in
depreciation......................................... (346,000) --
---------- ----------
Noncurrent net deferred tax liability............. $ (346,000) $ (72,000)
========== ==========
</TABLE>
Management of the Company considers it more likely than not that all the
deferred tax assets will be realized due to sufficient taxable income in future
years.
(8) INVESTMENT IN AFFILIATED COMPANY
In September 1995, the Company invested $2.5 million to provide one-half of
the initial capitalization of 21st Century, a newly formed mortgage company
which commenced operations in October 1995 and provides retail financing to
manufactured home buyers. 21st Century is 50% owned by the Company with the
remaining 50% ownership divided equally between 21st Century's management and
Clayton Homes, Inc. ("Clayton"). The Company has an option to purchase the stock
owned by Clayton and the management of 21st Century after September 15, 2000.
Summary financial information for 21st Century, derived from its audited
financial statements, from inception to May 31, 1996 and the year ended May 31,
1997 follows:
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Total assets............................................... $8,139,000 $28,477,000
========== ===========
Total liabilities.......................................... $3,269,000 $23,065,000
Shareholders' equity....................................... $4,870,000 $ 5,412,000
========== ===========
Total revenues............................................. $ 501,000 $ 4,212,000
Net income (loss).......................................... $ (130,000) $ 541,000
========== ===========
</TABLE>
(9) SHAREHOLDERS' EQUITY
On December 15, 1995, the Company effected a 5-for-4 stock split effective
immediately for shareholders of record on January 5, 1996 and payable on January
18, 1996.
On January 10, 1997, the Company effected a 5-for-4 stock split effective
immediately for shareholders of record on January 24, 1997 and payable on
February 7, 1997.
F-16
<PAGE> 40
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The consolidated financial statements, including all references to the
number of shares of common stock and all per share information, have been
adjusted to reflect the common stock splits.
During 1993, the Company and its principal shareholders sold common stock
to certain employees at amounts less than market value through the issuance of
notes receivable. The fair market value was determined by an independent
appraisal. Compensation expense resulting from the sale of these shares was
$61,000, $60,000, $23,000 for the years ended May 31, 1995, 1996 and 1997,
respectively.
A summary of common stock sold by the Company and its principal
shareholders during the year ended May 31, 1994 follow:
<TABLE>
<CAPTION>
NUMBER FAIR MARKET
OF SHARES PRICE PAID PER VALUE PER
SOLD SHARE SHARE DATE COMMON STOCK SOLD
--------- -------------- ------------- ----------------------
<S> <C> <C> <C> <C>
Common stock sold by
the Company......... 54,344 $2.27 $2.48 September 30, 1993,
October 31, 1993, and
February 28, 1994
Common stock sold by
principal
shareholders........ 140,704 $0.00 -- 1.07 $2.42 -- 2.48 June 2, 1993 and
October 15, 1993
</TABLE>
(10) STOCK COMPENSATION PLAN
During 1994, the Company adopted the 1994 Stock Compensation Plan (the
"Plan") whereby employees, independent directors and advisors are eligible to
receive awards under the Plan. The Plan is administered by a committee of the
Board of Directors (the "Committee"). An aggregate of 1,500,000 shares of common
stock has been authorized and reserved for issuance under the Plan pursuant to
the exercise of options or grant of restricted stock awards.
Restricted stock awards will give the recipient the right to receive a
specified amount of shares of common stock contingent upon remaining a Company
employee for a specified period, as determined by the Committee.
Options will become immediately exercisable and all restrictions will
immediately lapse with respect to any award of restricted stock in the event of
a change or threatened change in control of the Company and in the event of
certain mergers and reorganizations of the Company. The options will expire no
later than ten years after the date of grant. The exercise price for incentive
stock options under the Plan may not be less than the fair value of the common
stock on the date of grant. The exercise price for non-qualified options granted
under the Plan will be at the discretion of the Committee.
F-17
<PAGE> 41
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Option activity for the Company's 1994 Stock Compensation Plan follows:
<TABLE>
<CAPTION>
1994 STOCK WEIGHTED
COMPENSATION AVERAGE
PLAN EXERCISE PRICE
------------ --------------
<S> <C> <C>
Outstanding, May 31, 1994................................. -- $ --
Granted................................................. 342,813 5.23
Canceled................................................ (14,844) 5.12
--------- ------
Outstanding, May 31, 1995................................. 327,969 5.23
Granted................................................. 566,563 9.60
Options exercised....................................... (8,907) 5.12
Canceled................................................ (50,469) 7.07
--------- ------
Outstanding, May 31, 1996................................. 835,156 8.09
Granted................................................. 463,125 13.89
Options exercised....................................... (51,884) 7.55
Canceled................................................ (60,145) 11.65
--------- ------
Outstanding, May 31, 1997................................. 1,186,252 $10.25
========= ======
</TABLE>
A summary of the Company's 1994 Stock Compensation Plan at May 31, 1997
follows:
<TABLE>
<CAPTION>
EXERCISE PRICES
---------------------------------------------------------------
$5.12 -- $7.76 $8.80 -- $12.00 $12.40 -- $16.80 TOTAL
-------------- --------------- ---------------- ---------
<S> <C> <C> <C> <C>
Options outstanding............... 403,468 278,596 504,188 1,186,252
Weighted average exercise price --
options outstanding............. $ 6.03 $ 9.78 $ 13.89 $ 10.25
Options exercisable............... 128,813 19,940 11,938 160,691
Weighted average exercise price --
options exercisable............. $ 5.86 $ 10.54 $ 13.36 $ 6.99
Weighted average remaining
contractual life (years)........ 6.73 8.34 9.11 8.12
</TABLE>
During fiscal 1997, the Company granted each co-chief executive officer a
non-qualified stock option to purchase 93,750 shares of the Company's common
stock at $13.60 per share, the then fair market value of the Company's common
stock, under a Non-Qualified Stock Option Agreement (the "Option Agreements")
which remain subject to shareholder approval. The Company intends to seek
shareholder approval for the Option Agreements in connection with the Proxy
Statement for the Company's Annual Meeting of Shareholders to be held on October
2, 1997. Each option is exercisable after November 15, 2005 and terminates on
November 15, 2006. However, each option may be exercisable earlier according to
the following schedule:
<TABLE>
<S> <C>
31,250 shares If the Company's market capitalization equals or exceeds
$300 million at any time on or prior to November 15, 2000.
31,250 shares If the Company's market capitalization equals or exceeds
$400 million at any time on or prior to November 15, 2000.
31,250 shares If the Company's market capitalization equals or exceeds
$500 million at any time on or prior to November 15, 2000.
</TABLE>
As permitted under statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company accounts for
stock based compensation in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25").
F-18
<PAGE> 42
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accordingly, no compensation cost has been recognized in fiscal 1996 and 1997.
Had compensation cost been determined on the basis of SFAS 123, net income and
earnings per share would have been as follows:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-------------------------
1996 1997
---------- -----------
<S> <C> <C>
Net income:
As reported.............................................. $9,756,000 $14,692,000
Pro forma................................................ 9,516,000 14,197,000
Primary Earnings per Share:
As reported.............................................. $ 0.98 $ 1.31
Pro forma................................................ 0.96 1.26
Fully Diluted Earnings per Share:
As reported.............................................. $ 0.97 $ 1.30
Pro forma................................................ 0.94 1.25
</TABLE>
The fair value of each common stock option grant is estimated on the date
of the grant using the Black Scholes option-pricing model with the following
assumptions used for grants from all plans in fiscal 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Expected life (years)............................... 3-5 years 4-9 years
Risk-free interest rate............................. 6.32%-6.57% 6.40%-6.66%
Expected volatility................................. .557 .557
Expected dividend yield............................. 0.0% 0.0%
</TABLE>
(11) EMPLOYMENT AGREEMENTS
The Company entered into employment agreements, effective October 1, 1996,
with the co-chief executive officers of the Company. Each agreement specifies a
base salary of $235,000 per year plus an annual bonus of 2.25% of the Company's
after-tax consolidated net income. Pursuant to these agreements, each co-chief
executive officer was granted a stock option to purchase 62,500 shares of common
stock pursuant to the Company's 1994 Stock Compensation Plan (see note 10). In
addition, each co-chief executive officer was granted a Non-Qualified Stock
Option to purchase 93,750 shares of common stock at $13.60, the fair value of
the Company's common stock on the date of grant, under the Option Agreements
(see note 10).
(12) RELATED PARTY BALANCES AND TRANSACTIONS
MOAMCO Properties, Inc. (MOAMCO), an entity owned by the Company's Chairman
and Co-Chief Executive Officer, and Byway Partners, Ltd. (Byways), a limited
partnership in which the Company's President and Co-Chief Executive Officer is a
limited partner and family member is a general partner, leased to the Company
two facilities used in the manufacturing operations (the Lancaster Facility and
Burleson Facility). The Company believes that the lease agreements were on terms
not less favorable than those generally available to unaffiliated parties for
comparable properties. Amounts paid to MOAMCO and Byways during the years ended
May 31, 1995 and 1996, were $300,000 and $12,500, respectively. During the year
ended May 31, 1996, the Company exercised its option to purchase the Lancaster
Facility and Burleson Facility for $1,450,000 and $1,500,000, respectively. The
purchase price was based on independent appraisals and ratified by the Company's
Board of Directors. MOAMCO purchased the Lancaster Facility in 1992 for
$1,010,000. Byways purchased the Burleson Facility in 1992 for $1,100,000.
MOAMCO also owns and leases to the Company, under operating leases, land,
improvements and buildings related to three sales centers and the Company's
former corporate headquarters. During the years
F-19
<PAGE> 43
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ended May 31, 1995, 1996 and 1997, the Company paid MOAMCO approximately
$184,500, $144,000 and $78,000 respectively, for these operating leases (see
note 13).
During fiscal 1995, the Company managed the operations of and leased
corporate office space to Coastal Insurance Agency ("Coastal"), an entity that
sold property damage insurance on manufactured homes and in which the Company's
major shareholder had an economic interest. During the year ended May 31, 1995,
the Company received commissions from Coastal of $187,000. During the year ended
May 31, 1995, the Company received management fees from Coastal of $183,000.
(13) COMMITMENTS AND CONTINGENCIES
Repurchase agreements
The Company has entered into repurchase agreements with various financial
institutions and other credit sources pursuant to which the Company has agreed,
under certain circumstances, to repurchase manufactured homes sold to
independent dealers in the event of a default by a dealer in its obligation to
such credit sources. Under the terms of such repurchase agreements, the Company
agrees to repurchase manufactured homes at declining prices over the periods of
the agreements (which generally range from 12 to 15 months). As of May 31, 1997,
the Company was at risk to repurchase approximately $34.1 million of
manufactured homes.
Legal Matters
The Company is involved in various legal actions arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the Company's financial
condition or results of operations.
Savings Plan
During 1992, the Company adopted the American Homestar Corporation 401(k)
Retirement Plan (the "Savings Plan") whereby all employees of the Company are
eligible to participate in the Savings Plan who have completed one year of
service and have reached the age of twenty and one-half. The Savings Plan is
administered by a Plan Administrator appointed by the Company. Eligible
employees may contribute a portion of their annual compensation up to the legal
maximum established by the Internal Revenue Service for each plan year. The
Company's matching contributions are at the discretion of the Company and may be
made up to a maximum of 3% each plan year. Employee contributions are
immediately vested. Company contributions vest over the first six years of
employment. Amounts contributed by the Company to the Savings Plan for the years
ended May 31, 1995, 1996 and 1997 were $84,000, $120,000, and $185,000,
respectively.
Workers Compensation Liability
The Company has rejected the insurance coverage provided by the Texas
Workers' Compensation Act. While the Company maintains excess indemnity
insurance, the Company's portion of self-insured retention is $250,000 per
occurrence. Management, in assessing loss experience, adjusts the reserve
through periodic provisions.
Leases
The Company is obligated under various noncancelable operating lease
agreements with varying monthly payments and varying expiration dates through
2004. Rental expense under operating leases for the years ended May 31, 1995,
1996 and 1997 were $1,459,000, $1,509,000, and $2,644,000, respectively.
F-20
<PAGE> 44
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate annual rental payments, that include amounts due to related
parties, on future lease commitments at May 31, 1997 were as follows:
<TABLE>
<CAPTION>
TOTAL LEASE AMOUNTS DUE
COMMITMENTS RELATED PARTIES
----------- ---------------
<S> <C> <C>
1998...................................................... $2,457,000 $78,000
1999...................................................... 1,807,000 --
2000...................................................... 1,265,000 --
2001...................................................... 655,000 --
2002...................................................... 313,000 --
Thereafter................................................ 865,000 --
---------- -------
$7,362,000 $78,000
========== =======
</TABLE>
(14) CONCENTRATIONS OF CREDIT RISK
For the year ended May 31, 1997, the Company had one producer that supplied
18% of the houses sold by Company-owned retail sales centers. The Company has a
credit facility with one lender to finance the majority of its new home
inventory. The loss of this lender could have a material adverse effect on the
Company's operations. A majority of the Company-owned retail sales centers are
located in Texas.
(15) SUPPLEMENTAL INFORMATION FOR STATEMENTS OF CASH FLOWS
The Company had the following non-cash investing and financing activities:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Purchase of property, plant and equipment through
the issuance of notes payable.................. -- $2,000,000 $4,500,000
</TABLE>
Supplemental disclosures of cash flow information are as follows:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Income taxes paid................................ $4,838,000 $6,828,000 $9,729,000
Interest paid.................................... 2,215,000 2,600,000 4,852,000
</TABLE>
F-21
<PAGE> 45
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(16) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following presents a summary of the unaudited quarterly financial
information for the years ended May 31, 1996 and 1997:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
1996
Revenues...................... $59,656 $50,808 $53,427 $67,341 $231,232
Operating income.............. 4,435 4,421 4,194 6,422 19,472
Net income.................... 2,182 2,213 2,028 3,333 9,756
Net income per share.......... 0.23 0.23 0.21 0.31 0.98
1997
Revenues...................... $66,706 $89,306 $84,389 $99,578 $339,979
Operating income.............. 5,644 7,268 6,696 9,765 29,373
Net income.................... 3,018 3,585 3,110 4,979 14,692
Net income per share.......... 0.27 0.32 0.28 0.44 1.31
</TABLE>
F-22
<PAGE> 46
SCHEDULE II
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
--------------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF YEAR EXPENSES ACCOUNTS OTHER(1) DEDUCTIONS YEAR
----------- ------------ ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended May 31, 1995
Warranty and service.......... $ 641,000 $ 5,900,000 $ -- $ -- $ 5,381,000 $1,160,000
Year ended May 31, 1996
Warranty and service.......... $ 1,160,000 $ 8,044,000 $ -- $ -- $ 7,754,000 $1,450,000
Year ended May 31, 1997
Warranty and service.......... $ 1,450,000 $10,859,000 $ -- $3,832,000 $11,510,000 $4,631,000
</TABLE>
- ---------------
(1) Amount represents acquired reserve for warranty and service costs.
F-23
<PAGE> 47
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT REPORT WITH WHICH
NO. DESCRIPTION EXHIBIT WAS FILED
------- ----------- -----------------
<C> <S> <C>
2.1 -- Securities Purchase Agreement by and among Brilliant July 1997, Form 8-K/A
Holding Corporation (Brilliant), the Brilliant
Securityholders and American Homestar Corporation.
2.2 -- First Amendment to the Securities Purchase Agreement by July 1997, Form 8-K/A
and among Brilliant, the Brilliant Securityholders and
American Homestar Corporation.
2.3 -- Agreement and Plan of Merger between American Homestar Filed herewith
Corporation, Nationwide N.C. Homes, Inc., N.C. Mobile
Home Corp., and Robert H. Sauls.
3.1 -- Restated Articles of Incorporation of American Homestar S-1 Registration Statement
Corporation. No. 33-78630
3.2 -- Amended and Restated Bylaws of American Homestar S-1 Registration Statement
Corporation. No. 33-78630
4.1 -- Form of certificate evidencing ownership of Common Stock S-1 Registration Statement
of American Homestar Corporation. No. 33-78630
4.2 -- Shareholders Agreement, dated as of August 31, 1993, by S-1 Registration Statement
and among American Homestar Corporation and certain No. 33-78630
shareholders of American Homestar Corporation.
4.3 -- Form of Amendment to Shareholders Agreement. S-1 Registration Statement
No. 33-78630
10.1 -- Loan Agreement, dated September 24, 1996, among American February 1997, Form 10-Q
Homestar Corporation, Oak Creek Housing Corporation,
Nationwide Housing Systems, Inc., American Homestar
Financial Services, Inc., Heartland Homes, Inc., Guerdon
Homes, Inc., American Homestar of Burleson, Inc.,
American Homestar of Lancaster, Inc. and Bank One, Texas,
N.A.
10.2 -- $2,100,000 Term Promissory Note, dated September 24, February 1997, Form 10-Q
1996, by and between American Homestar Corporation, Oak
Creek Housing Corporation and Bank One, Texas, N.A.
10.3 -- $4,600,000 Term Promissory Note, dated September 24, February 1997, Form 10-Q
1996, by and between American Homestar Corporation, Oak
Creek Housing Corporation and Bank One, Texas, N.A.
10.4 -- $11,300,000 Term Promissory Note, dated September 24, February 1997, Form 10-Q
1996, by and between American Homestar Corporation, Oak
Creek Housing Corporation and Bank One, Texas, N.A.
10.5 -- $7,000,000 Term Promissory Note, dated September 24, February 1997, Form 10-Q
1996, by and between American Homestar Corporation, Oak
Creek Housing Corporation and Bank One, Texas, N.A.
10.6 -- Employment Agreement, dated as of November 15, 1996, February 1997, Form 10-Q
between Finis F. Teeter and American Homestar
Corporation.
10.7 -- Employment Agreement, dated as of November 15, 1996, February 1997, Form 10-Q
between Laurence A. Dawson, Jr. and American Homestar
Corporation.
10.8 -- Nonqualified Stock Option Agreement, dated November 15, February 1997, Form 10-Q
1996 between Finis F. Teeter and American Homestar
Corporation.
</TABLE>
F-24
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT REPORT WITH WHICH
NO. DESCRIPTION EXHIBIT WAS FILED
------- ----------- -----------------
<C> <S> <C>
10.9 -- Nonqualified Stock Option Agreement, dated November 15, February 1997, Form 10-Q
1996 between Laurence A. Dawson, Jr. and American
Homestar Corporation.
10.10 -- Amendment to Life Reinsurance Contract, dated December February 1997, Form 10-Q
31, 1996, by and between Lifestar Reinsurance Limited and
American Bankers Life Assurance Company of Florida
10.11 -- Amendment to Ford Finance Company, Inc. Inventory November 1996, Form 10-Q
Financing Agreement
11 -- Statement Re Computation of Per Share Earnings Filed herewith
12 -- None
13 -- None
16 -- None
18 -- None
21 -- List of Subsidiaries Filed herewith
22 -- None
23 -- Consent of KPMG Peat Marwick LLP Filed herewith
24 -- None
27 -- Financial Data Schedule Filed herewith
99 -- None
</TABLE>
F-25
<PAGE> 1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
AMERICAN HOMESTAR CORPORATION,
NATIONWIDE N.C. HOMES, INC.,
N.C. MOBILE HOME CORP.
AND
ROBERT H. SAULS
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. The Merger
1.1 Merger of the Company into AHC Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.2 Articles of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.3 Articles of Incorporation of Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.4 Bylaws of the Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.5 Directors of the Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.6 Officers of the Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.7 Cancellation of Company Common Stock; Merger Consideration . . . . . . . . . . . . . . . . . . . . . -2-
1.8 Exchange of Certificates Representing Shares of Company Stock . . . . . . . . . . . . . . . . . . . -3-
1.9 Subsequent Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
1.10 Non-Taxable Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
1.11 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
Section 2. Representations and Warranties of the Company and the Shareholder
2.1 Corporate Existence; Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
2.2 Power and Authority for Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
2.3 Permits, Licenses and Governmental Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . -5-
2.4 Corporate Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
2.5 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
2.6 Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
2.7 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
2.8 Condition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
2.9 Title to and Encumbrances on Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
2.10 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
2.11 Intellectual Property Rights; Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
2.12 Directors and Officers; Payroll Information; Employees . . . . . . . . . . . . . . . . . . . . . . . -8-
2.13 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
2.14 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
2.15 Subsequent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
2.16 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
2.17 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
2.18 Commissions and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
2.19 Liabilities; Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
2.20 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
2.21 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
2.22 Adverse Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
2.23 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
2.24 No Untrue Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
2.25 Accredited Investor Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
2.26 Distributions and Repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
2.27 Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
2.28 Banking Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
2.29 Ownership Interests of Interested Persons; Competitors . . . . . . . . . . . . . . . . . . . . . . -14-
2.30 Investments; Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
2.31 Economic Risk; Sophistication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
Section 3. Representations and Warranties of AHC and AHC Sub
3.1 Corporate Existence: Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
3.2 Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
3.3 Commissions and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
3.4 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
Section 4. Covenants of the Company and the Shareholder
4.1 Consummation of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
4.2 Business Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
4.3 Access and Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
4.4 Approvals of Third Parties and Permits and Consents . . . . . . . . . . . . . . . . . . . . . . . -16-
4.5 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
4.6 Funding of Accrued Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
4.7 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
4.8 Distributions and Repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
4.9 Requirements to Effect Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
4.10 Voting of Shares; Irrevocable Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
4.11 Accounting and Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
4.12 Real Property Lease with Shareholder or Related Entities . . . . . . . . . . . . . . . . . . . . . -17-
4.13 Licenses and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
4.14 Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
Section 5. Covenants of AHC and AHC Sub
5.1 Consummation of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
5.2 Approvals of Third Parties and Permits and Consents . . . . . . . . . . . . . . . . . . . . . . . -18-
5.3 Listing Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
5.4 Access and Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
Section 6. AHC and AHC Sub Conditions Precedent
6.1 Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
6.2 Covenants and Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
6.3 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
6.4 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
6.5 Due Diligence Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
6.6 Approval by the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
6.7 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
6.8 Closing Deliveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
6.9 Debt and Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
6.10 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
6.11 EBT Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
6.12 Delivery of Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
6.13 Schedule of Indemnifiable Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
6.14 Allocation of Environmental Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
Section 7. The Company's and the Shareholder's Conditions Precedent
7.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
7.2 Covenants and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
7.3 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
7.4 Closing Deliveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
7.5 EBT Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
7.6 Delivery of Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
7.7 Schedule 9.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
7.8 Allocation of Environmental Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
Section 8. Closing Deliveries
8.1 Deliveries of the Company and the Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
8.2 Deliveries of AHC and AHC Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
Section 9. Nature and Survival of Representations and Warranties; Indemnification
9.1 Nature and Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
9.2 Indemnification by AHC and AHC Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
9.3 Indemnification by the Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
9.4 Indemnification Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
9.5 Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
9.6 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
Section 10. Termination
Section 11. Nondisclosure of Confidential Information
Section 12. Miscellaneous
12.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
12.2 Further Assurances; Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
12.3 Each Party to Bear Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
12.5 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
12.6 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
12.7 Integration of Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
12.8 Entire Agreement/Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
12.9 Binding Effect/Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
12.10 No Rule of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
12.11 Costs of Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C> <C>
12.12 Amendments; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
12.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
12.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
</TABLE>
-iv-
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER ("Agreement"), made and executed as
of the 1st day of April, 1997, is by and among American Homestar Corporation, a
Texas corporation ("AHC"); Nationwide N.C. Homes, Inc., a Texas corporation
("AHC Sub") and a wholly-owned subsidiary of AHC; N.C. Mobile Home Corp., a
North Carolina corporation (the "Company"), and Robert H. Sauls, an individual
resident of the State of North Carolina and the sole shareholder of the Company
(the "Shareholder").
WITNESSETH:
WHEREAS, the Company operates a manufactured home retailing business
in North Carolina and Virginia;
WHEREAS, the Shareholder is the sole shareholder of the Company;
WHEREAS, AHC Sub is a wholly-owned subsidiary of AHC formed in
anticipation of the transactions contemplated in this Agreement; and
WHEREAS, the Boards of Directors of each of the Company, AHC and AHC
Sub have determined that a business combination between the parties is in the
best interests of their respective companies and shareholders and accordingly
have agreed to effect the Merger (hereinafter defined) upon the terms and
conditions set forth herein;
NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, and for other good and valuable consideration, the
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
SECTION 1. THE MERGER.
The Merger of the Company with and into AHC Sub (the "Closing") shall
occur on the 1st day of June, 1997 (the "Closing Date"), unless another date is
mutually agreed upon in writing by the parties hereto, shall be based on the
respective representations, warranties and agreements of the parties hereto,
and shall be subject to the terms and conditions herein stated.
1.1 MERGER OF THE COMPANY INTO AHC SUB. On the Closing Date, the
Company shall be merged with and into AHC Sub in accordance with this Agreement
and the separate corporate existence of the Company shall thereupon cease (the
"Merger"). AHC Sub shall be the surviving corporation in the Merger (in such
capacity, hereinafter referred to as the "Surviving Corporation") and shall
continue to be governed by the laws of the State of Texas and the separate
corporate existence of Surviving Corporation with all its rights, privileges,
powers, immunities, purposes and franchises shall continue unaffected by the
Merger, except as set forth herein. The Merger shall have the effects
specified in the Texas Business Corporation Act ("TBCA") and in the North
Carolina Business Corporation Act ("NCBCA").
<PAGE> 7
1.2 ARTICLES OF MERGER. If all conditions to the Merger set forth
herein have been fulfilled or waived in accordance herewith and this Agreement
shall not have been terminated pursuant to the terms hereof, the parties hereto
shall cause to be properly executed and filed on the Closing Date Articles of
Merger meeting the requirements of the TBCA and the NCBCA. The Merger shall
become effective on the Closing Date.
1.3 ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. Effective
on the Closing Date, the Articles of Incorporation of AHC Sub shall be the
Articles of Incorporation of the Surviving Corporation.
1.4 BYLAWS OF THE SURVIVING CORPORATION. The Bylaws of AHC Sub on
the Closing Date shall be the Bylaws of the Surviving Corporation, until duly
amended in accordance with their terms.
1.5 DIRECTORS OF THE SURVIVING CORPORATION. The persons who are
directors of AHC Sub immediately prior to the Closing Date shall, from and
after the Closing Date, be the directors of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Articles of Incorporation and Bylaws.
1.6 OFFICERS OF THE SURVIVING CORPORATION. The persons who are
officers of AHC Sub immediately prior to the Closing Date shall, from and after
the Closing Date, be the officers of the Surviving Corporation and shall hold
their same respective office(s) until their earlier death, resignation or
removal.
1.7 CANCELLATION OF COMPANY COMMON STOCK; MERGER CONSIDERATION.
The manner of converting shares of the Company in the Merger shall be as
follows:
(a) As a result of the Merger and without any action on
the part of the holder thereof, all shares of the Company's common stock (the
"Company Stock") issued and outstanding on the Closing Date shall cease to be
outstanding and shall be cancelled and retired and shall cease to exist, and
each holder of a certificate representing any such shares of Company Stock
shall thereafter cease to have any rights with respect to such shares of
Company Stock, except the right to receive, without interest, a pro rata
portion, based on the number of shares of Company Stock owned by each of the
Company's shareholders on the Closing Date, of the Merger Consideration (as
hereinafter defined). As used in this Agreement, the term "Merger
Consideration" shall mean (a) a number of shares of AHC common stock, par
value $0.05 per share ("AHC Common Stock"), equal to the quotient of $2,000,000
divided by the greater of (i) the average closing price of AHC Common Stock on
the Nasdaq National Market (as reported in the Wall Street Journal) on the 10
trading days prior to the public announcement of the Merger or (ii) $17.00 per
share; (b) an amount of cash equal to One Million Dollars ($1,000,000) (the
"Cash Consideration"); and (c) a Promissory Note of AHC in the form set forth
in Exhibit A attached hereto in the principal amount of One Million Five
Hundred Thousand Dollars ($1,500,000) (the "Note"); provided,
-2-
<PAGE> 8
however, that the Merger Consideration shall be subject to adjustment as
provided in Sections 1.7(b) and 9.3 below.
(b) If the Company's earnings before taxes ("EBT") for
the twelve month period beginning on September 1, 1995 and ending on August 31,
1996 (the "EBT Period") is less than $1,244,677 (the "EBT Target Amount"), then
the principal amount of the Note, and, thereafter as necessary, the Cash
Consideration, shall be offset and reduced by $3.00 for each whole $1.00 sum
that the actual EBT during the EBT Period is below the EBT Target Amount. The
difference between $1,244,677 and the actual EBT for the EBT Period is referred
to herein as the "EBT Deficit". EBT shall be determined by AHC in accordance
with generally accepted accounting principles ("GAAP"), consistently applied.
(c) (i) If the Company's EBT for the twelve month period
beginning on September 1, 1996, and ending on August 31, 1997 (the "2nd EBT
Period") is less than $1,165,200 less the EBT Deficit (the "2nd EBT Target
Amount"), then the principal amount of the Note and the shares of AHC Common
Stock delivered hereunder (based on the calculation in Section 1.7(a) above)
shall be offset and reduced on a 56% to 44% basis, respectively, by $3.00 for
each $1.00 sum that the actual EBT during the 2nd EBT Period is below the 2nd
EBT Target Amount; provided, however, that the maximum offset and reduction
under this Section 1.7(c)(i) shall be $1,000,000. If AHC and Shareholder
cannot agree on the appropriate adjustment by October 31, 1997, then such issue
shall be submitted to binding arbitration in Atlanta, Georgia, pursuant to the
Commercial Rules of the American Arbitration Association, the decision of which
arbitrators shall be final and binding on AHC and the Shareholder.
(ii) AHC Sub shall at all times after the Closing
and through the end of the 2nd EBT Period operate its business in a
commercially reasonable manner. Following the Closing and through the end of
the 2nd EBT Period (A) AHC Sub shall own and operate the business formally
conducted by the Company in substantially the same manner as it was operated by
the Company prior to the Closing; (B) subject to the foregoing and provided
that AHC Sub shall not undertake any fundamental changes having a negative
impact on EBT during the 2nd EBT Period, if AHC Sub makes material changes in
operating its business in the ordinary course of business, then AHC Sub and the
Shareholder shall agree on the methodology for allocating the financial impact
of such changes; and (C) charges in the nature of "corporate overhead",
"corporate expense allocation" or inter-company charges or other expenses which
would not have been incurred by the Company (or in excess of amounts which
would have been incurred) had the sale and change of control of the Company not
occurred, shall not be included in computing EBT.
1.8 EXCHANGE OF CERTIFICATES REPRESENTING SHARES OF COMPANY STOCK.
The Shareholder shall deliver to AHC on the Closing Date the certificates
representing Company Stock owned by him, duly endorsed in blank by the
Shareholder, or accompanied by blank stock powers. Upon such delivery, the
Shareholder shall be entitled to receive in exchange therefor the Merger
Consideration.
-3-
<PAGE> 9
1.9 SUBSEQUENT ACTIONS. If, at any time after the Closing Date,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of the Company acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger or otherwise to
carry out this Agreement, and to effect the cancellation of all outstanding
shares of Company Stock in return for the consideration set forth in this
Agreement, the officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of the Company and
the Shareholder or otherwise, to carry out all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of the
Company or otherwise, all such other actions and things as may be necessary or
desirable to vest, perfect or confirm any and all right, title and interest in,
to and under such rights, properties or assets in the Surviving Corporation or
otherwise to carry out this Agreement.
1.10 NON-TAXABLE TRANSACTION. It is intended that for federal
income tax purposes that the Merger shall qualify as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"). Following the Closing, AHC and the Shareholder agree to not
undertake any action which would cause or result in the Merger not qualifying
for such treatment, which actions shall be attached at Closing as Schedule 1.10
(which shall include a two-year holding period on the AHC Common Stock issued
to the Shareholder).
1.11 ESCROW AGREEMENT. On the Closing Date, Shareholder and AHC
Sub agree to enter into an escrow agreement, in form and substance reasonably
acceptable to such parties, pursuant to which Shareholder shall place into
escrow with a mutually acceptable escrow agent, the AHC Common Stock delivered
hereunder for purposes of possible reduction as provided in Section 1.7(c)
above and Section 12.3 below.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SHAREHOLDER.
The Company and the Shareholder, jointly and severally, hereby
represent and warrant to AHC and AHC Sub as follows:
2.1 CORPORATE EXISTENCE; GOOD STANDING. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of North Carolina. The Company has all necessary corporate
powers to own all of its assets and to carry on its business as such business
is now being conducted. Except as set forth in Schedule 2.1, the Company does
not own stock in or control, directly or indirectly, any other corporation,
association or business organization, nor is the Company a party to any joint
venture or partnership. The Shareholder is the sole shareholder of the Company
and owns all outstanding shares of capital stock of the Company free of all
security interests, claims, encumbrances and liens. Each share of Company
common stock has been legally and validly issued and fully paid and
nonassessable. There are no outstanding (a) bonds, debentures, notes or other
obligations the holders of which have the right to vote with the shareholders
of the Company on any matter, (b)
-4-
<PAGE> 10
securities of the Company convertible into equity interests in the Company, or
(c) commitments, options, rights or warrants to issue any such equity interests
in the Company, to issue securities of the Company convertible into such equity
interests, or to redeem any securities of the Company. No shares of capital
stock of the Company have been issued or disposed of in violation of the
preemptive rights, rights of first refusal or similar rights of any of the
Company's shareholders. The Company is qualified to do business in the State
of Virginia, but is not required to qualify to do business as a foreign
corporation in any other state or jurisdiction by reason of its business,
properties or activities in or relating to such other state or jurisdiction.
The Company does not have any assets, employees or offices in any state other
than North Carolina and Virginia.
2.2 POWER AND AUTHORITY FOR TRANSACTIONS. The Company has the
corporate power to execute, deliver and perform this Agreement and all
agreements and other documents executed and delivered by it pursuant to this
Agreement or to be executed and delivered on the Closing Date, and has taken
all action required by law, its Articles of Incorporation, its Bylaws or
otherwise, to authorize the execution, delivery and performance of this
Agreement and such related documents. The Shareholder has the legal capacity
to enter into and perform this Agreement and the other documents, instruments
and agreements to be executed and delivered in connection herewith. The
Company has obtained the approval of its shareholders necessary to the
consummation of the transactions contemplated herein. This Agreement and all
documents, instruments and agreements executed and delivered in connection
herewith have been, or will be as of the Closing Date, duly executed and
delivered by the Company and the Shareholder, as appropriate, and constitute or
will constitute the legal, valid and binding obligations of the Company and the
Shareholder, enforceable against the Company and the Shareholder in accordance
with their respective terms, except as may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies. The execution and delivery of this
Agreement, and the documents, instruments and agreements executed and delivered
pursuant to this Agreement or to be executed and delivered on the Closing Date,
do not, and, subject to the receipt of consents described on Schedule 2.5
below, the consummation of the actions contemplated hereby will not, violate
any provision of the Articles of Incorporation or Bylaws of the Company or any
provisions of, or result in the acceleration of, or loss of any right in, to or
under, any obligation under any mortgage, lien, lease, agreement, rent,
instrument, order, arbitration award, judgment or decree to which the Company
or the Shareholder is a party or by which the Company or the Shareholder is
bound, or violate any material restrictions of any kind to which the Company is
subject, or result in any lien or encumbrance on any of the Company's assets.
2.3 PERMITS, LICENSES AND GOVERNMENTAL AUTHORIZATIONS. All
building or other permits, certificates of occupancy, concessions, grants,
franchises, licenses, certificates of need and other governmental
authorizations and approvals required to be maintained by the Company, the
Shareholder and each employee of the Company have been duly obtained and are in
full force and effect and are described on Schedule 2.3. There are no
proceedings pending or, to the knowledge of the Company and the Shareholder,
threatened, which may result in the revocation, cancellation or suspension, or
any adverse modification, of any thereof.
-5-
<PAGE> 11
2.4 CORPORATE RECORDS. True and correct copies of the Articles of
Incorporation, Bylaws and minutes of the Company and all amendments thereto of
the Company have been delivered to AHC. The minute books of the Company
contain all accurate minutes of the meetings of and consents to actions taken
without meetings of the Board of Directors and shareholders of the Company
since its formation. The books of account of the Company have been kept
accurately in the ordinary course of business and the revenues, expenses,
assets and liabilities of the Company have been properly recorded in such
books.
2.5 CONSENTS. Except as set forth on Schedule 2.5, no consent,
authorization, permit, license or filing with any governmental authority, any
lender, lessor, any manufacturer or supplier or any other person or entity is
required to authorize, or is required in connection with, the execution,
delivery and performance of this Agreement and the documents, instruments and
agreements contemplated hereby on the part of the Company or the Shareholder.
2.6 FINANCIAL INFORMATION. The Company has heretofore furnished
AHC with copies of the audited balance sheet for the twelve-months ended August
31, 1995, and the audited balance sheet and related audited statements of
income, retained earnings and cash flows for the twelve-months ended August 31,
1996, including the notes thereto, and an unaudited balance sheet ("Balance
Sheet") and income statement as of February 28, 1997 ("Balance Sheet Date")
(the financial statements described in this sentence are hereinafter referred
to as the "Financial Statements"). All the Financial Statements have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods indicated, reflect all liabilities
of the Company, including all contingent liabilities of the Company, as of
their respective dates, present fairly the financial position of the Company as
of such dates and the results of operations and cash flows for the period or
periods reflected therein.
2.7 LEASES.
(a) Schedule 2.7(a) attached hereto sets forth a list of
all leases pursuant to which the Company leases, as lessor or lessee, real
property used in operating the business of the Company or otherwise. All such
leases listed on Schedule 2.7(a) are valid and enforceable in accordance with
their respective terms, and there is not under any such lease any existing
default by the Company, as lessor or lessee, or any condition or event of which
the Company or the Shareholder has knowledge which with notice or lapse of
time, or both, would constitute a default, in respect of which the Company has
not taken adequate steps to cure such default or to prevent a default from
occurring. Schedule 2.7(a) also indicates whether or not the office at such
leased facility is owned or leased by the Company, and if owned by the Company,
the year, model number and the type (single wide/double wide) of office.
(b) Schedule 2.7(b) attached hereto sets forth a list of
all leases pursuant to which the Company leases, as lessor or lessee, personal
property used in operating the business of the Company or otherwise. All such
leases listed on Schedule 2.7(b) are valid and enforceable in accordance with
their respective terms, and there is not under any such lease any existing
default by the Company, as lessor or lessee, or any condition or event of which
the Company or
-6-
<PAGE> 12
the Shareholder has knowledge which with notice or lapse of time, or both,
would constitute a default, in respect of which the Company has not taken
adequate steps to cure such default or to prevent a default from occurring.
2.8 CONDITION OF ASSETS. All of the Assets are in good condition
and repair subject to normal wear and tear and conform with all applicable
ordinances, regulations and other laws, and the Company and the Shareholder
have no knowledge of any latent defects therein.
2.9 TITLE TO AND ENCUMBRANCES ON PROPERTY. A description of all
interests in real and personal property owned by the Company is set forth on
Schedule 2.9(a). The Company has good, valid and marketable title to all of
its personal and real property, free and clear of any liens, claims, charges,
exceptions or encumbrances, except for those, if any, which are set forth in
Schedule 2.9(a) attached hereto. The real and personal property described on
Schedule 2.9(a) and Schedule 2.7 constitute the only real and personal property
used in the conduct of the Company's business. Except as provided in Schedule
2.9(b), upon consummation of the transactions contemplated hereby, such
interest in real and personal property shall be free and clear of all liens,
security interests, claims and encumbrances and evidence of such releases of
liens and claims shall be provided to AHC Sub on the Closing Date.
2.10 INVENTORIES. All inventories of the Company used in the
conduct of its business are reflected on the Balance Sheet in accordance with
generally accepted accounting principles consistently applied. Set forth on
Schedule 2.10(a) is a listing of new and used homes (by brand, model and single
wide/double wide) for each home on the Company's retail sales lots as of
February 28, 1997. The items of the Company's inventory have been acquired in
the ordinary course of its business, are adequate for the reasonable
requirements of its business, and, to the best knowledge of the Company and the
Shareholder, may be used for their intended purposes. All of the inventory
owned or used by the Company is in good, current, standard and merchantable
condition and is not obsolete or defective, except for used house inventory
described in Schedule 2.10(b).
2.11 INTELLECTUAL PROPERTY RIGHTS; NAMES. Except as set forth on
Schedule 2.11, the Company has no right, title or interest in or to patents,
patent rights, corporate names, assumed names, manufacturing processes, trade
names, trademarks, service marks, inventions, specialized treatment protocols,
copyrights, formulas and trade secrets or similar items and such items are the
only such items necessary for the conduct of its business. Set forth in
Schedule 2.11 is a listing of all names of all predecessor companies of the
Company, including the names of any entities from whom the Company previously
acquired significant assets. Except for off-the-shelf software licenses and
except as set forth on Schedule 2.11, the Company is not a licensee in respect
of any patents, trademarks, service marks, trade names, copyrights or
applications therefor, or manufacturing processes, formulas or trade secrets or
similar items and no such licenses are necessary for the conduct of its
business. No claim is pending or has been made to the effect that the present
or past operations of the Company infringe upon or conflict with the asserted
rights of others to any patents, patent rights, manufacturing processes, trade
names, trademarks, service marks, inventions, licenses, specialized treatment
protocols, copyrights, formulas, know-how and
-7-
<PAGE> 13
trade secrets. The Company has the sole and exclusive right to use all such
proprietary rights without infringing or violating the rights of any third
parties and no consents of any third parties are required for the use thereof
by the Surviving Corporation.
2.12 DIRECTORS AND OFFICERS; PAYROLL INFORMATION; EMPLOYEES. Set
forth on Schedule 2.12 attached hereto is a true and complete list, as of the
date of this Agreement of: (a) the name of each director and officer of the
Company and the offices held by each, (b) the most recent payroll report of the
Company, showing all current employees of the Company and their current levels
of compensation, (c) promised increases in compensation of employees of the
Company that have not yet been effected, (d) oral or written employment
agreements or independent contractor agreements (and all amendments thereto) to
which the Company is a party, copies of which have been delivered to AHC, and
(e) all employee manuals, materials, policies, procedures and work-related
rules, copies of which have been delivered to AHC. There are no promised
increases in compensation of employees of the Company that have not yet been
effected. The Company is in compliance with all applicable laws, rules,
regulations and ordinances respecting employment and employment practices. The
Company has not engaged in any unfair labor practice. There are no unfair
labor practices charges or complaints pending or threatened against the
Company, and the Company has never been a party to any agreement with any
union, labor organization or collective bargaining unit.
2.13 LEGAL PROCEEDINGS. Except as set forth in Schedule 2.13,
neither the Company nor the Shareholder nor outstanding shares of the Company's
stock nor any of the Company's assets is subject to any pending, nor does the
Company or the Shareholder have knowledge of any threatened, litigation,
governmental investigation, condemnation or other proceeding against or
relating to or affecting the Company, the Shareholder, the outstanding shares
of the Company's stock, any of the assets of the Company, the operations,
business or prospects of the Company or the transactions contemplated by this
Agreement, and, to the knowledge of the Company and the Shareholder, no basis
for any such action exists, nor is there any legal impediment of which the
Company or the Shareholder have knowledge to the continued operation of its
business in the ordinary course, subject to consents set forth on Schedule 2.5.
2.14 CONTRACTS. The Company has delivered to AHC true copies of
all written, and disclosed to AHC Sub all oral, outstanding contracts,
obligations and commitments of the Company ("Contracts"), all of which are
listed or incorporated by reference on Schedule 2.7 (in the case of leases) and
Schedule 2.14 (in the case of Contracts other than leases) attached hereto.
Except as otherwise indicated on such Schedules, all of such Contracts are
valid, binding and enforceable in accordance with their terms and are in full
force and effect, and no defenses, offsets or counterclaims have been asserted
or may be made by any party thereto. Except as indicated on such Schedules,
there is not under any such Contract any existing default by the Company, or
any condition or event of which the Company or the Shareholder has knowledge
which with notice or lapse of time, or both, would constitute a default. The
Company and the Shareholder have no knowledge of any default by any other party
to such Contracts. Neither the Company nor the Shareholder have received
notice of the intention of any party to any Contract to cancel or terminate any
Contract and have no reason to believe that any amendment or change to any
-8-
<PAGE> 14
Contract is contemplated by any party thereto. Other than those contracts,
obligations and commitments of the Company listed on Schedules 2.7 and 2.14,
the Company is not a party to any material written or oral agreement contract,
lease or arrangement, including any:
(a) Contract related to the assets of the Company not
made in the ordinary course of business other than this Agreement;
(b) Employment, consulting or compensation agreement or
arrangement;
(c) Labor or collective bargaining agreement;
(d) Lease agreement with respect to any property, whether
as lessor or lessee;
(e) Deed, bill of sale or other document evidencing an
interest in or agreement to purchase or sell real or personal property;
(f) Contract for the purchase of materials, supplies or
equipment (i) which is in excess of the requirements of its business now booked
or for normal operating inventories, or (ii) which is not terminable upon
notice of thirty (30) days or less;
(g) Agreement for the purchase from a supplier of all or
substantially all of the requirements of the Company of a particular product or
service;
(h) Loan agreement or other contract for money borrowed
or lent or to be borrowed or lent to another;
(i) Installment sales contracts between the Company and
any customer;
(j) Contracts containing non-competition covenants; or
(k) Other contracts or agreements that involve either an
unperformed commitment in excess of $5,000 or that terminate or can only be
terminated by the Company on more than 30 days after the date hereof.
2.15 SUBSEQUENT EVENTS. Except as set forth on Schedule 2.15, the
Company has not, since the Balance Sheet Date:
(a) Incurred any material obligation or liability
(absolute, accrued, contingent or otherwise) or entered into any contract,
lease, license or commitment, except in connection with the performance of this
Agreement, other than in the ordinary course of business;
(b) Discharged or satisfied any material lien or
encumbrance, or paid or satisfied any material obligation or liability
(absolute, accrued, contingent or otherwise) other than
-9-
<PAGE> 15
(i) liabilities shown or reflected on the Balance Sheet or (ii) liabilities
incurred since the Balance Sheet Date in the ordinary course of business;
(c) Formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(d) Made any payments to or loaned any money to any
person or entity other than in the ordinary course of business;
(e) Lost or terminated any employee, customer or supplier
that has, individually or in the aggregate, a material adverse effect on its
business;
(f) Increased or established any reserve for taxes or any
other liability on its books or otherwise provided therefor, except as may have
been required due to income or operations of the Company since the Balance
Sheet Date;
(g) Mortgaged, pledged or subjected to any lien, charge
or other encumbrance any of the assets of the Company, tangible or intangible;
(h) Sold or contracted to sell or transferred or
contracted to transfer any of the assets used in the conduct of the Company's
business or cancelled any debts or claims or waived any rights, except in the
ordinary course of business;
(i) Except in the ordinary course or business consistent
with past practices, granted any increase in the rates of pay of employees,
consultants or agents, or by means of any bonus or pension plan, contract or
other commitment, increased the compensation of any officer, employee,
consultant or agent;
(j) Authorized or incurred any capital expenditures in
excess of Ten Thousand and No/100 Dollars ($10,000.00);
(k) Except for this Agreement and any other agreement
executed and delivered pursuant to this Agreement, entered into any material
transaction other than in the ordinary course of business or permitted
hereunder;
(l) Redeemed, purchased, sold or issued any stock, bonds
or other securities;
(m) Experienced damage, destruction or loss (whether or
not covered by insurance) materially and adversely affecting any of its
properties, assets or business, or experienced any other material adverse
change in its financial condition, assets, prospects, liabilities or business;
(n) Declared or paid a distribution, payment or dividend
of any kind on the capital stock of the Company;
-10-
<PAGE> 16
(o) Repurchased, approved any repurchase or agreed to
repurchase any of the Company's capital stock; or
(p) Suffered any material adverse change in the business
of the Company or to the assets of the Company.
2.16 ACCOUNTS RECEIVABLE. Schedule 2.16 contains a true and
accurate list of all accounts and notes receivable of the Company at the
Balance Sheet Date. The Company maintains its accounting records in sufficient
detail to substantiate the accounts receivable reflected on the Balance Sheet
and has given and will give to AHC Sub full and complete access to those
records, including the right to make copies therefrom. Since the Balance Sheet
Date, the Company has not changed any principle or practice with respect to the
recordation of accounts receivable or the calculation of reserves therefor, or
any material collection, discount or write-off policy or procedure.
2.17 TAXES. Except as set forth on Schedule 2.17, the Company has
filed all tax returns required to be filed by it, and made all payments of
taxes, including any interest, penalty or addition thereto, required to be made
by it, with respect to income taxes, real and personal property taxes, sales
taxes, use taxes, employment taxes, excise taxes and other taxes due and
payable on or before the date of this Agreement. All such tax returns are
complete and accurate in all respects and properly reflect the relevant taxes
for the periods covered thereby. The Company has no tax liability, except for
real and personal property taxes for the current period not yet due and payable
and sales, use, employment and similar taxes for periods as to which such taxes
have not yet become due and payable. The unpaid taxes of the Company did not,
as of the Balance Sheet Date, exceed the reserve for taxes (rather than any
reserve for deferred taxes established to reflect timing differences between
book and income tax income) set forth on the face of the Balance Sheet (rather
than in any notes thereto), as adjusted for the passage of time through the
Closing Date (in accordance with the past custom and practice of the Company).
The Company and the Shareholder have not received any notice that any tax
deficiency or delinquency has been asserted against the Company. There are no
audits relating to taxes of the Company threatened, pending or in process. The
Company is not currently the beneficiary of any waiver of any statute of
limitations in respect of taxes nor of any extension of time within which to
file any tax return or to pay any tax assessment or deficiency. There are no
liens or encumbrances relating to taxes on or threatened against any of the
assets of the Company. The Company has withheld and paid all taxes required by
law to have been withheld and paid by it. Neither the Company nor any
predecessor of the Company is or has been a party to any tax allocation or
sharing agreement or a member of an affiliated group of corporations filing a
consolidated federal income tax return. The Company has delivered to AHC
correct and complete copies of the Company's three most recently filed annual
state and federal income tax returns, together with all examination reports and
statements of deficiencies assessed against or agreed to by the Company during
the three calendar year period preceding the date of this Agreement. The
Company has neither made any payments, is obligated to make any payments, or is
a party to any agreement that under any circumstance could obligate it to make
any payments that will not be deductible under Section 280G of the Internal
Revenue Code of 1986, as amended.
-11-
<PAGE> 17
2.18 COMMISSIONS AND FEES. Except as described in Schedule 2.18,
there are no claims for brokerage commissions or finder's or similar fees in
connection with the transactions contemplated by this Agreement which may be
now or hereafter asserted against AHC, AHC Sub, the Company or the Shareholder
resulting from any action taken by the Company or the Shareholder or their
respective agents or employees, or any of them.
2.19 LIABILITIES; DEBT. Except to the extent reflected or reserved
against on the Balance Sheet, the Company did not have, as of the Balance Sheet
Date, and has not incurred since that date and will not have occurred as of the
Closing Date, any liabilities or obligations of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, other than
those incurred in the ordinary course of business. The Company and the
Shareholder do not know, or have reasonable grounds to know, of any basis for
the assertion against the Company as of the Balance Sheet Date, of any claim or
liability of any nature in any amount not fully reflected or reserved against
on the Balance Sheet, or of any claim or liability of any nature arising since
that date other than those incurred in the ordinary course of business or
contemplated by this Agreement. All indebtedness of the Company (including
without limitation, indebtedness for borrowed money, guaranties and capital
lease obligations) is described on Schedule 2.19 attached hereto.
2.20 INSURANCE POLICIES. The Company, the Shareholder and each
employee of the Company carries property, liability, workers' compensation and
such other types of insurance as is customary in the industry. Valid and
enforceable policies in such amounts are outstanding and duly in force and will
remain duly in force through the Closing Date. All such policies are described
in Schedule 2.20 attached hereto and true and correct copies have been
delivered to AHC. Neither the Company nor the Shareholder have received notice
or other communication from the issuer of any such insurance policy cancelling
or amending such policy or threatening to do so. Neither the Company, nor the
Shareholder nor any employee of the Company has any outstanding claims,
settlements or premiums owed against any insurance policy.
2.21 EMPLOYEE BENEFIT PLANS. Except as set forth on Schedule 2.21
attached hereto, the Company has neither established, nor maintains, nor is
obligated to make contributions to or under or otherwise participate in, (a)
any bonus or other type of compensation or employment plan, program, agreement,
policy, commitment, contract or arrangement (whether or not set forth in a
written document); (b) any pension, profit-sharing, retirement or other plan,
program or arrangement; or (c) any other employee benefit plan, fund or
program, including, but not limited to, those described in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). All
such plans listed on Schedule 2.21 (individually "Company Plan," and
collectively "Company Plans") have been operated and administered in all
material respects in accordance with all applicable laws, rules and
regulations, including without limitation, ERISA, the Internal Revenue Code of
1986, as amended, Title VII of the Civil Rights Act of 1964, as amended, the
Equal Pay Act of 1967, as amended, the Age Discrimination in Employment Act of
1967, as amended, and the related rules and regulations adopted by those
federal agencies responsible for the administration of such laws. No act or
failure to act by the Company has resulted in a "prohibited transaction" (as
defined in ERISA) with respect to the Company Plans.
-12-
<PAGE> 18
No "reportable event" (as defined in ERISA) has occurred with respect to any of
the Company Plans. The Company has not previously made, is not currently
making, and is not obligated in any way to make, any contributions to any
multiemployer plan within the meaning of the Multi-Employer Pension Plan
Amendments Act of 1980. With respect to each Company Plan, either (i) the
value of plan assets (including commitments under insurance contracts) is at
least equal to the value of plan liabilities or (ii) the value of plan
liabilities in excess of plan assets is disclosed on the Balance Sheet, all as
of the Closing Date.
2.22 ADVERSE AGREEMENTS. The Company is not, and will not be as of
the Closing Date, a party to any agreement or instrument or subject to any
charter or other corporate restriction or any judgment, order, writ,
injunction, decree, rule or regulation that materially and adversely affects
the condition (financial or otherwise), operations, assets, liabilities,
business or prospects of the Company.
2.23 COMPLIANCE WITH LAWS. Except as set forth on Schedule 2.23,
the Company, the Shareholder and Company's employees have complied with all
applicable laws, rules, regulations and licensing requirements, including,
without limitation, the Federal Environmental Protection Act, the Occupational
Safety and Health Act, the Americans with Disabilities Act and any
environmental laws, and there exist no violations by the Company, the
Shareholder or any employee of the Company of any federal, state or local law
or regulation. Neither the Company nor the Shareholder have received any
notice of a violation of any federal, state and local laws, regulations and
ordinances relating to the operations of the business and assets of the Company
and no notice of any pending inspection or violation of any such law,
regulation or ordinance has been received by the Company or the Shareholder.
2.24 NO UNTRUE REPRESENTATIONS. No representation or warranty by
the Company or the Shareholder in this Agreement, and no Schedule or
certificate issued or executed by, or information furnished by, officers or
directors of the Company or the Shareholder and furnished or to be furnished to
AHC Sub or AHC pursuant hereto, or in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact necessary to make
the statements or facts contained therein not misleading.
2.25 ACCREDITED INVESTOR STATUS. The Shareholder is an "accredited
investor" as defined in Rule 501(a) under the Securities Act of 1933, as
amended (the "Securities Act").
2.26 DISTRIBUTIONS AND REPURCHASES. Except as set forth in
Schedule 2.26, no distribution, payment or dividend of any kind has been
declared or paid by the Company on any of its capital stock since August 31,
1996. No repurchase of any of the Company's capital stock has been approved,
effected or is pending, or is contemplated by the Board of Directors of the
Company.
2.27 SUPPLIERS. Set forth in Schedule 2.27 is a complete and
accurate list of the five (5) largest suppliers of the Company in terms of
dollar volume of transactions for each of the last two
-13-
<PAGE> 19
fiscal years and the current fiscal year to date, showing, with respect to
each, the name, address and aggregate purchases from such supplier in the
number of single-wide and double-wide homes purchased in each such period.
2.28 BANKING RELATIONS. Set forth in Schedule 2.28 is a complete
and accurate list of all arrangements that the Company has with any bank or
other financial institution, indicating with respect to each relationship the
type of arrangement maintained (such as checking account, borrowing
arrangements, safe deposit box, etc.) and the person or persons authorized in
respect thereof.
2.29 OWNERSHIP INTERESTS OF INTERESTED PERSONS; COMPETITORS.
Except as set forth on Schedule 2.29, no officer, employee, director or
shareholder of the Company, or their respective spouses, children or
affiliates, owns directly or indirectly, on an individual or joint basis, any
interest in, has a compensation or other financial arrangement with, or serves
as an officer or director of, any customer or supplier or competitor of the
Company or any organization that has a material contract or arrangement with
the Company. Except as set forth on Schedule 2.29, neither the Company, nor
any of its directors, officers, employees, consultants or the Shareholder nor
any affiliate of such person is, or within the last three years was, a party to
any contract, lease, agreement or arrangement, including, but not limited to,
any joint venture or consulting agreement with any person or entity which is in
a position to make or influence referrals of business to, or otherwise generate
business for, the Company or to provide services, lease space, lease equipment
or engage in any other venture or activity with the Company.
2.30 INVESTMENTS; COMPLIANCE WITH LAW. The AHC Common Stock to be
acquired by the Shareholder pursuant to this Agreement is being acquired solely
for his own account, for investment purposes only and with no present intention
of distributing, selling or otherwise disposing of it in connection with a
distribution.
2.31 ECONOMIC RISK; SOPHISTICATION. The Shareholder is able to
bear the economic risk of an investment in AHC Common Stock acquired pursuant
to this Agreement and can afford to sustain a total loss of such investment and
has such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the proposed investment and
therefore has the capacity to protect his own interests in connection with the
acquisition of the AHC Common Stock. The Shareholder has had an adequate
opportunity to ask questions and receive answers from the officers of AHC
concerning any and all matters relating to the Company. The Shareholder has
asked any and all questions in the nature described in the preceding sentence
and all questions have been answered to his satisfaction.
2.32 RESTRICTIONS ON AHC STOCK. The Shareholder acknowledges that
the AHC Common Stock to be acquired by the Shareholder are unregistered and may
not be sold or transferred in the absence of registration under the Securities
Act and applicable state securities Act and applicable state securities laws,
unless an exemption exists therefor; and the certificates representing such
shares shall be legended accordingly.
-14-
<PAGE> 20
SECTION 3. REPRESENTATIONS AND WARRANTIES OF AHC AND AHC SUB.
AHC and AHC Sub hereby represent and warrant to the Company and the
Shareholder as follows:
3.1 CORPORATE EXISTENCE: GOOD STANDING. AHC and AHC Sub are
corporations duly organized and existing and in good standing under the laws of
the State of Texas.
3.2 POWER AND AUTHORITY. Each of AHC and AHC Sub has corporate
power to execute, deliver and perform this Agreement and all documents,
instruments and agreements executed and delivered by it pursuant to this
Agreement, and has taken all actions required by law, its Articles of
Incorporation, its Bylaws or otherwise, to authorize the execution, delivery
and performance of this Agreement and such related documents, instruments and
agreements. The execution and delivery of this Agreement and the documents,
instruments and agreements related hereto executed and delivered pursuant to or
in connection with this Agreement do not and, subject to the receipt of
consents to assignments of leases and other contracts where required and the
receipt of regulatory approvals where required, the consummation of the
transactions contemplated hereby will not, violate any provision of the
Articles of Incorporation or Bylaws of either AHC Sub or AHC or any provisions
of, or result in the acceleration of, any obligation under any mortgage, lien,
lease, agreement instrument, order, arbitration award, judgment or decree to
which AHC Sub or AHC is a party or by which either of them is bound, or violate
any restrictions of any kind to which AHC Sub or AHC is subject.
3.3 COMMISSIONS AND FEES. AHC and AHC Sub have not incurred any
obligation for any finder's, broker's or agent's fees in connection with the
transactions contemplated hereby.
3.4 CAPITAL STOCK. All of the outstanding shares of the common
stock of AHC Sub are or will be as of the Closing Date validly issued, fully
paid and nonassessable and are or will be as of the Closing Date owned
indirectly by AHC, free and clear of all liens, claims and encumbrances. The
issuance and delivery by AHC of shares of the AH Common Stock in connection
with the Merger will be as of the Closing Date duly and validly authorized by
all necessary corporate action on the part of AHC. The shares of AHC common
stock to be issued in connection with the Merger, when issued in accordance
with the terms of this Agreement, will be validly issued, fully paid and
nonassessable.
SECTION 4. COVENANTS OF THE COMPANY AND THE SHAREHOLDER.
The Company and the Shareholder, jointly and severally, agree that
between the date hereof and the Closing Date:
4.1 CONSUMMATION OF AGREEMENT. The Company and the Shareholder
shall each use their best efforts to cause the consummation of the transactions
contemplated hereby in accordance with their terms and conditions.
-15-
<PAGE> 21
4.2 BUSINESS OPERATIONS. The Company and the Shareholder shall
operate the Company's business in the ordinary course. The Company shall not
enter into any lease, contract, indebtedness, commitment, purchase or sale or
acquire or dispose of any asset except in the ordinary course of business. The
Company and the Shareholder shall use their best efforts to preserve the
business and assets of the Company intact and shall not take any action that
would have an adverse effect on the business or assets of the Company; provided
that the Company may continue to operate in the ordinary course of business.
The Company and the Shareholder shall use their best efforts to preserve intact
the relationships with, customers, suppliers and others having significant
business relations with the Company. The Company shall collect its receivables
and pay its trade payables in the ordinary course of business. The Company
shall not introduce any new method of management, operations or accounting.
4.3 ACCESS AND NOTICE. The Company and the Shareholder shall
permit AHC and AHC Sub and their authorized representatives access to, and make
available for inspection, all of the assets and business of the Company and all
of its assets, including employees, customers and suppliers and permit AHC, AHC
Sub and their authorized representatives to inspect and make copies of all
documents, records and information with respect to the business or assets of
the Company as AHC, AHC Sub or their representatives may request. The Company
and the Shareholder shall promptly notify AHC in writing of (a) any notice or
communication relating to a default or event that, with notice or lapse of
time or both, could become a default, under any contract, commitment or
obligation to which the Company is a party, and (b) any adverse change in the
Company's business, financial condition or the conditions of its assets.
4.4 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS. The
Company and the Shareholder shall use their best efforts to secure all
necessary approvals and consents of third parties to the consummation of the
transactions contemplated hereby, including consents described on Schedule 2.5
and to renegotiate each real estate lease described on Schedule 2.5 with such
terms and conditions as are acceptable to AHC.
4.5 ACQUISITION PROPOSALS The Company and the Shareholder shall
not, and shall use their best efforts to cause the Company's employees, agents
and representatives not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer, including without limitation, any proposal or offer to the Shareholder,
with respect to a merger, acquisition, consolidation or similar transaction
involving, or the purchase of all or any significant portion of the assets or
any equity securities of the Company or engage in any negotiations concerning,
or provide any confidential information or data to, or have any discussions
with, any person relating to such proposal or offer, and the Company and the
Shareholder will immediately cease any such activities, discussions or
negotiations heretofore conducted with respect to any of the foregoing. The
Company and the Shareholder shall immediately notify AHC Sub if any such
inquiries or proposals are received.
4.6 FUNDING OF ACCRUED EMPLOYEE BENEFITS. The Company hereby
covenants and agrees that it will take whatever steps are necessary to pay or
fund completely for any accrued benefits, where applicable, or vested accrued
benefits for which the Company or any entity might
-16-
<PAGE> 22
have any liability whatsoever arising from any salary, wage, benefit, bonus,
insurance, employment tax or similar liability of the Company to any employee
or other person or entity (including, without limitation, any Company Plan and
any liability under employment contracts with the Company) allocable to
services performed prior to the Closing Date.
4.7 EMPLOYEE MATTERS. The Company shall not, without the prior
written approval of AHC or AHC Sub, except as required by law, increase the
cash compensation of the Shareholder or any other employee or an independent
contractor of the Company, adopt, amend or terminate any compensation plan,
employment agreement, independent contractor agreement, employee policies and
procedures or employee benefit plan, take any action that could deplete the
assets of any employee benefit, or fail to pay any premium or contribution due
or file any report with respect to any employee benefit plan, or take any other
actions with respect to its employees or employee matters which might have an
adverse effect upon the Company, its business, assets or prospects.
4.8 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or
dividend of any kind will be declared or paid by the Company on its capital
stock, nor will any repurchase of any of the Company's capital stock be
approved or effected.
4.9 REQUIREMENTS TO EFFECT MERGER. The Company and the
Shareholder shall use their best efforts to take, or cause to be taken, all
actions necessary to effect the Merger under applicable law, including without
limitation the filing with the appropriate government officials of all
necessary documents in form approved by counsel for the parties to this
Agreement.
4.10 VOTING OF SHARES; IRREVOCABLE PROXY. The Shareholder agree
that until the earlier of the Closing Date or the termination of this
Agreement, the Shareholder shall vote all shares of Company common stock owned
by him at any meeting of the shareholders of the Company or take action by
written consent for adoption of this Agreement, as hereby amended, and in favor
of the Merger and any other transactions contemplated by this Agreement, and
against any action, omission or agreement which would impede or interfere with,
or have the effect of discouraging, the Merger.
4.11 ACCOUNTING AND TAX MATTERS. The Company will not change in
any material respect the accounting methods or practices followed by the
Company (including any material change in any assumption underlying, or any
method of calculating, any bad debt, contingency or other reserve), except as
may be required by generally accepted accounting principles. The Company will
not make any material tax election except in the ordinary course of business
consistent with past practice, change any material tax election already made,
adopt any tax accounting method except in the ordinary course of business
consistent with past practice, change any tax accounting method, enter into any
closing agreement, settle any tax claim or assessment or consent to any tax
claim or assessment or any waiver of the statute of limitations for any such
claim or assessment. The Company will duly, accurately and timely (without
regard to any extensions of time) file all returns, information statements and
other documents relating to taxes
-17-
<PAGE> 23
of the Company required to be filed by it, and pay all taxes required to be
paid by it, on or before the Closing Date.
4.12 REAL PROPERTY LEASE WITH SHAREHOLDER OR RELATED ENTITIES.
With respect to any real property leased by the Company from the Shareholder,
or any affiliate or related entity of the Company or the Shareholder, the
Company shall enter into a new lease (the "Lease"), such Lease to contain terms
and provisions satisfactory to AHC, including without limitation: (i) a lease
rate equal to the fair market value lease rate, as agreed to by AHC, (ii) a
right of first refusal to acquire such property upon any proposed sale thereof,
and (iii) such other provisions to be acceptable to AHC.
4.13 LICENSES AND PERMITS. The Shareholder shall use its best
efforts to obtain all licenses, permits, approvals or other authorizations
required under any law, statute, rule, regulation or ordinance, or otherwise
necessary or desirable to consummate the transactions contemplated hereby.
4.14 EMPLOYMENT AGREEMENT. Shareholder shall have agreed to
become an employee of AHC as of the Closing Date on the terms and conditions
set forth in the Employment Agreement attached hereto as Exhibit B.
SECTION 5. COVENANTS OF AHC AND AHC SUB.
AHC and AHC Sub, jointly and severally, agree that between the date
hereof and the Closing Date:
5.1 CONSUMMATION OF AGREEMENT. AHC and AHC Sub shall use their
best efforts to cause the consummation of the transactions contemplated hereby
in accordance with their terms and provisions. AHC and AHC Sub will use their
best efforts to take, or cause to be taken, all actions necessary to effect the
Merger under applicable law, including without limitation the filing with the
appropriate government officials all necessary documents in form approved by
counsel for the parties to this Agreement.
5.2 APPROVALS OF THIRD PARTIES AND PERMITS AND CONSENTS. AHC and
AHC Sub shall use their best efforts to secure all necessary approvals and
consents of third parties to the consummation of the transactions contemplated
hereby.
5.3 LISTING APPLICATION. AHC shall prepare and submit to the
Nasdaq National Market a listing application covering the Stock Consideration
and shall use its best efforts to obtain approval for the listing of the Stock
Consideration upon official notice of issuance.
5.4 ACCESS AND NOTICE. AHC and AHC Sub shall permit the
Shareholder and its authorized representatives reasonable access to, and make
available for inspection, all of the assets and business of AHC and AHC Sub and
permit Shareholder and its authorized representatives to inspect and make
copies of all documents, records and information with respect to the business
-18-
<PAGE> 24
or assets of AHC and AHC Sub as Shareholder or its representatives may request.
AHC shall promptly notify Shareholder in writing of (a) any notice or
communication relating to a default or event that, with notice or lapse of time
or both, could become a default, under any contract, commitment or obligation
to which AHC or AHC Sub is a party, and (b) any adverse change in AHC's or AHC
Sub's business, financial condition or the conditions of its assets.
SECTION 6. AHC AND AHC SUB CONDITIONS PRECEDENT.
The obligations of AHC and AHC Sub hereunder are subject to the
fulfillment at or prior to the Closing Date of each of the following
conditions:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company and the Shareholder contained herein shall have been
true and correct in all respects when initially made and shall be true and
correct in all respects as of the Closing Date.
6.2 COVENANTS AND CONDITIONS. The Company and the Shareholder
shall have performed and complied in all material respects with all covenants
and conditions required by this Agreement to be performed and complied with by
the Company and the Shareholder prior to the Closing Date.
6.3 PROCEEDINGS. No action, proceeding or order by any court or
governmental body shall have been threatened orally or in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
6.4 NO MATERIAL ADVERSE CHANGE. No material adverse change in the
condition (financial or otherwise), operations, assets, liabilities, business
or prospects of the Company shall have occurred since the Balance Sheet Date,
and the Company shall have furnished to AHC interim monthly financial
statements for each month (excluding May) ended on or prior to the Closing
Date.
6.5 DUE DILIGENCE REVIEW. By the Closing Date, AHC and AHC Sub
shall have completed a due diligence review of the business, operations and
financial statements of the Company, the results of which shall be satisfactory
to AHC and AHC Sub in their sole discretion.
6.6 APPROVAL BY THE BOARD OF DIRECTORS This Agreement and the
transactions contemplated hereby shall have been approved by the Board of
Directors of AHC or a committee thereof.
6.7 CONSENTS AND APPROVALS. The Company and the Shareholder shall
have obtained all necessary government and other third-party approvals and
consents.
6.8 CLOSING DELIVERIES. AHC Sub shall have received all
documents, duly executed in form satisfactory to AHC Sub and its counsel,
referred to in Section 8.1.
-19-
<PAGE> 25
6.9 DEBT AND RECEIVABLES. There shall be no indebtedness,
receivables or payables between the Company and its shareholders or affiliates
and the Company shall not have any liabilities, including indebtedness,
guaranties and capital leases, that are not approved by AHC.
6.10 LEASES. All real estate leases to which the Company is a
party or under which the Company has any obligation whatsoever shall have been
reviewed by, and shall be acceptable to AHC in all respects.
6.11 EBT CALCULATION. The Company and AHC shall have agreed on the
actual EBT for the EBT Period.
6.12 DELIVERY OF SCHEDULES. The parties acknowledge and agree that
this Agreement has been executed and delivered without attaching the Schedules
referred herein. Any schedules to this Agreement delivered by the Company or
Shareholder to AHC after the date hereof but prior to the Closing shall be in
form and substance acceptable to AHC and its counsel. Such schedules, when
approved, shall be attached to and become part of, this Agreement.
6.13 SCHEDULE OF INDEMNIFIABLE ITEMS. The Shareholder and AHC
shall have agreed, based upon the Schedules, on a schedule of indemnifiable
items, if any, which Schedule shall be attached hereto as Schedule 9.3.
6.14 ALLOCATION OF ENVIRONMENTAL COSTS. Except as provided in
Section 12.3, AHC and the Shareholder shall have agreed on the allocation of
costs and expenses for any investigation, testing, clean-up or remediation work
on, or permits required for, the properties owned or leased by the Company or
any affiliate thereof.
SECTION 7. THE COMPANY'S AND THE SHAREHOLDER'S CONDITIONS PRECEDENT.
The respective obligations of the Company and the Shareholder
hereunder are subject to fulfillment at or prior to the Closing Date of each of
the following conditions:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of AHC and AHC Sub contained herein shall have been true and correct
in all respects when initially made and shall be true and correct in all
respects as of the Closing Date.
7.2 COVENANTS AND CONDITIONS. AHC and AHC Sub shall have
performed and complied in all material respects with all covenants and
conditions required by this Agreement to be performed and complied with by AHC
and AHC Sub prior to the Closing Date.
7.3 PROCEEDINGS. No action, proceeding or order by any court or
governmental body shall have been threatened orally or in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
-20-
<PAGE> 26
7.4 CLOSING DELIVERIES. The Company shall have received all
documents, duly executed in form satisfactory to the Company and its counsel,
referred to in Section 8.2.
7.5 EBT CALCULATION. The Company and AHC shall have agreed on the
actual EBT for the EBT Period.
7.6 DELIVERY OF SCHEDULES. The Schedules to be delivered by the
Company pursuant to Section 6.12 above shall be acceptable to the Company.
7.7 SCHEDULE 9.3. Schedule 9.3, as described in Section 6.13
above, shall be acceptable to the Shareholder.
7.8 ALLOCATION OF ENVIRONMENTAL COSTS. AHC and the Shareholder
shall have agreed on the allocation of costs and expenses for any
investigation, testing, clean-up or remediation work on, or permits required
for, the properties owned or leased by the Company or any affiliate thereof.
SECTION 8. CLOSING DELIVERIES.
8.1 DELIVERIES OF THE COMPANY AND THE SHAREHOLDER. At or prior to
the Closing, the Company and the Shareholder shall deliver to AHC the
following, all of which shall be in a form satisfactory to counsel to AHC and
AHC Sub:
(a) a copy of the resolutions of the Board of Directors
of the Company authorizing the execution, delivery and performance of this
Agreement and all related documents and agreements each certified by the
Secretary as being true and correct copies of the original thereof;
(b) certificates of the President of the Company and of
the Shareholder, dated as of the Closing Date, (i) as to the truth and
correctness of the representations and warranties of the Company and the
Shareholder contained herein; (ii) as to the performance of and compliance by
the Company and the Shareholder with all covenants contained herein; and (iii)
certifying that all conditions precedent of the Company and the Shareholder to
the Closing have been satisfied;
(c) a certificate of the Secretary of the Company
certifying as to the incumbency of the directors and officers of the Company
and as to the signatures of such directors and officers who have executed
documents delivered at the Closing on behalf of the Company;
(d) a certificate, dated within 10 days of the Closing
Date, of the Secretary of the State of North Carolina establishing that the
Company is in existence and is in good standing to transact business in its
state of incorporation;
(e) an opinion of counsel to the Company and the
Shareholder, in form and substance reasonably satisfactory to AHC and its
counsel;
-21-
<PAGE> 27
(f) non-foreign affidavits executed by the Company and
the Shareholder;
(g) all authorizations, consents, approvals, permits and
licenses referred to in Sections 2.3 and 2.5; and
(h) the resignations of the directors and officers of the
Company as requested by AHC Sub;
(i) a Shareholder Release in the form attached hereto as
Exhibit C executed by the Shareholder;
(j) an Employment Agreement in the form attached hereto
as Exhibit B executed by the Shareholder; and
(k) such other instruments and documents as reasonably
requested by AHC or AHC Sub to carry out and effect the purpose and intent of
this Agreement.
8.2 DELIVERIES OF AHC AND AHC SUB. At or prior to the Closing,
AHC and AHC Sub shall deliver to the Company the following, all of which shall
be in a form satisfactory to counsel to the Company and the Shareholder, as
applicable:
(a) the Merger Consideration;
(b) a copy of the resolutions of the Board of Directors
of AHC and AHC Sub (or a committee thereof) authorizing the execution, delivery
and performance of this Agreement and all related documents and agreements each
certified by the Secretary as being true and correct copies of the original
thereof;
(c) certificates of the President of AHC and AHC Sub,
dated as of the Closing Date, (i) as to the truth and correctness of the
representations and warranties of AHC and AHC Sub contained herein; (ii) as to
the performance of and compliance by AHC and AHC Sub with all covenants
contained herein; and (iii) certifying that all conditions precedent of AHC and
AHC Sub to the Closing have been satisfied;
(d) a certificate of the Secretary of AHC and AHC Sub
certifying as to the incumbency of the directors and officers of AHC and AHC
Sub and as to the signatures of such directors and officers who have executed
documents delivered at the Closing on behalf of AHC and AHC Sub;
(e) certificates, dated within 10 days of the Closing
Date, of the Secretary of the State of Texas establishing that AHC and AHC Sub
are in existence and are in good standing to transact business in the State of
Texas and the State of North Carolina;
-22-
<PAGE> 28
(f) an opinion of counsel to AHC and AHC Sub, in form and
substance reasonably satisfactory to the Company and its counsel; and
(g) such other instruments and documents as reasonably
requested by the Company or Shareholder to carry out and effect the purpose and
intent of this Agreement.
SECTION 9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION.
9.1 NATURE AND SURVIVAL. All statements contained in this
Agreement or in any Exhibit or Schedule attached hereto, any document,
instrument and agreement executed pursuant hereto, and any certificate executed
and delivered by any party pursuant to the terms of this Agreement, shall
constitute representations and warranties of the Company and the Shareholder,
jointly and severally, or of AHC and AHC Sub, jointly and severally, as the
case may be. All such representations and warranties, all representations and
warranties expressly labeled as such in this Agreement and the indemnification
event described in item (iii) of Sectio 9.3 below (the "Event") shall survive
the date of this Agreement and the Closing Date for a period of three (3) years
following the Closing Date, except that the tax representations shall survive
until one year after the expiration of the applicable statute of limitations.
Each party covenants with the other parties not to make any claim with respect
to such representations and warranties or the Event against any party after the
date on which such survival period shall terminate. No party shall be entitled
to claim indemnity from any other party pursuant to Sections 9.2 or 9.3 hereof,
unless such party has timely given the notice required in Sections 9.2, 9.3 or
9.4 hereof, as the case may be. Each party hereby releases, acquits and
discharges the other party from any and all claims and demands, actions and
causes of action, damages, costs, expenses and rights of setoff with respect to
which the notices required by Section 9.2, 9.3 or 9.4, as applicable, are not
timely provided.
9.2 INDEMNIFICATION BY AHC AND AHC SUB. AHC and AHC Sub, jointly
and severally (for purposes of this Section 9.2, "Indemnitor"), shall indemnify
and hold the Shareholder and his agents and employees (each of the foregoing,
including the Shareholder, for purposes of this Section 9.2, an "Indemnified
Person"), harmless from and against any and all liabilities, losses, damages,
actions, suits, costs, deficiencies and expenses (including, but not limited
to, reasonable fees and disbursements of counsel through appeal) (collectively,
"Damages"), (i) arising from or by reason of or resulting from any breach by
Indemnitor of any representation, warranty, agreement or covenant contained in
this Agreement (including the Schedules and Exhibits hereto) and each document,
certificate or other instrument furnished or to be furnished by Indemnitor
hereunder, (ii) from and after the Closing Date, arising from or by reason of
or resulting from Indemnitor's management and conduct of the ownership of the
Company (excluding actions taken by the Shareholder as an employee of the
Surviving Corporation) that no claim shall be made for Damages under this
Section 9.2 until, and such claims may be made only to the extent that, the
dollar amount of all such Damages shall exceed in the aggregate $50,000; and
provided further, however, indemnification for Damages under this Section 9.2
shall not exceed the aggregate amount of the Merger Consideration. In
connection with Indemnitor's obligation to indemnify for expenses, Indemnitor
shall reimburse each
-23-
<PAGE> 29
Indemnified Person for all such expenses as they are incurred by such
Indemnified Person, provided that such Indemnified Person agrees in writing to
refund all such reimbursed expenses if and to the extent that it is finally
judicially determined that such Indemnified Person is not entitled to
indemnification hereunder.
9.3 INDEMNIFICATION BY THE SHAREHOLDER. The Shareholder (for
purposes of this Section 9.3, "Indemnitor"), shall indemnify and hold AHC, AHC
Sub and their respective officers, directors, shareholders, agents and
employees (each of the foregoing for purposes of this Section 9.3, an
"Indemnified Person"), harmless from and against any and all Damages (i)
arising from or by reason of or resulting from any breach by Indemnitor of any
representation, warranty, agreement or covenant contained in this Agreement
(including the Schedules and Exhibits hereto) and each document, certificate or
other instrument furnished or to be furnished by Indemnitor hereunder, (ii) any
claims whatsoever by Shareholder's father, Robert M. Sauls, or any other person
asserting that it owns an equity interest, or has a contingent arrangement with
respect to acquiring an equity interest, the Company, including, without
limitation, any claims under or in any way arising out of that certain Stock
Purchase Agreement dated August 29, 1995, by and between Robert M. Sauls and
Shareholder, (iii) any liabilities, contingent or otherwise (known or unknown
and asserted or unasserted) arising out of transactions effected or events
occurring on or prior to the Closing Date, except as set forth in the Balance
Sheet or incurred in the ordinary course of business since the Balance Sheet
Date and except if disclosed on a Schedule hereto (unless set forth on Schedule
9.3); and (iv) the matters described on Schedule 9.3; provided, however that
except for a claim relating to (ii) above or tax or environmental matters, no
claim shall be made for Damages under this Section 9.3 until, and such claims
may be made only to the extent that, the dollar amount of all such Damages
shall exceed in the aggregate $50,000; and provided further, however,
indemnification for Damages under this Section 9.3 shall not exceed the
aggregate amount of the Merger Consideration. In connection with Indemnitor's
obligation to indemnify for expenses, any Indemnified Person shall be entitled
to offset the amount of any Damages against the unpaid balance of the Note,
upon written notice to Indemnitor of the amount and cause of such Damages, and
the unpaid principal amount of the Note shall be reduced by the amount of such
Damages, provided, that such Indemnified Person agrees in writing to refund all
such offset expenses if and to the extent that it is finally judicially
determined that such Indemnified Person is not entitled to indemnification
hereunder. In the event that the balance of the Note at such time is
insufficient to cover the full amount of such Damages, Indemnitor shall
reimburse each Indemnified Person for any remaining unoffset Damages as they
may be incurred by such Indemnified Person, provided, that such Indemnified
Person agrees in writing to refund all such reimbursed expenses if and to the
extent that it is finally judicially determined that such Indemnified Person is
not entitled to indemnification hereunder.
9.4 INDEMNIFICATION PROCEDURE. The respective obligations and
liabilities of the Shareholder, AHC and AHC Sub (the "indemnifying party") to
the other (the "party to be indemnified") under Sections 9.2 and 9.3 with
respect to claims resulting from the assertion of liability by third parties
shall be subject to the following additional terms and conditions:
-24-
<PAGE> 30
(a) Within 20 days (or such earlier time as might be required to
avoid prejudicing the indemnifying party's position) after receipt of notice of
commencement of any action evidenced by service of process or other legal
pleading, the party to be indemnified shall give the indemnifying party written
notice thereof together with a copy of such claim, process or other legal
pleading, and the indemnifying party shall have the right to undertake the
defense thereof by representatives of its own choosing and at its own expense;
provided that the party to be indemnified may participate in the defense with
counsel of its own choice, the fees and expenses of which counsel shall be paid
by the party to be indemnified unless (i) the indemnifying party has agreed to
pay such fees and expenses, (ii) the indemnifying party has failed to assume
the defense of such action or (iii) the named parties to any such action
(including any impleaded parties) include both the indemnifying party and the
party to be indemnified and the party to be indemnified has been advised by
counsel that there may be one or more legal defenses available to it that are
different from or additional to those available to the indemnifying party (in
which case, if the party to be indemnified informs the indemnifying party in
writing that it elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such action on behalf of the party to be indemnified, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys at any time for the party to be indemnified, which
firm shall be designated in writing by the party to be indemnified). The
failure to promptly deliver a notice of an indemnity claim hereunder shall not
relieve the indemnifying party of its obligations to the indemnified party with
respect to such claim except to the extent that the resulting delay is
materially prejudicial to the defense of such claim.
(b) In the event that the indemnifying party, by the 30th day
after receipt of notice of any such claim (or, if earlier, by the 10th day
preceding the day on which an answer or other pleading must be served in order
to prevent judgment by default in favor of the person asserting such claim),
does not elect to defend against such claim, the party to be indemnified will
(upon further notice to the indemnifying party) have the right to undertake the
defense, compromise or settlement of such claim on behalf of and for the
account and risk of the indemnifying party and at the indemnifying party's
expense, subject to the right of the indemnifying party to assume the defense
of such claims at any time prior to settlement, compromise or final
determination thereof.
(c) Notwithstanding the foregoing, the indemnifying party shall
not settle any claim without the consent of the party to be indemnified unless
such settlement involves only the payment of money and the claimant provides to
the party to be indemnified a release from all liability in respect of such
claim. If the settlement of the claim involves more than the payment of money,
the indemnifying party shall not settle the claim without the prior consent of
the party to be indemnified. The party to be indemnified and the indemnifying
party will each cooperate with all reasonable requests of the other.
-25-
<PAGE> 31
9.5 CERTAIN TAX MATTERS.
(a) AHC shall prepare and file or cause to be prepared
and filed any tax returns, statements and reports ("Tax Returns") of Surviving
Corporation covering taxable periods ending on or before the Closing Date which
have not been filed on or before the Closing Date. The Shareholder shall
within fifteen (15) days after payment thereof and receipt of notice of such
payment, reimburse, indemnify and hold harmless AHC and the Surviving
Corporation for all taxes, and all related interest, penalties and additions to
tax ("Taxes"), with respect to taxable periods of the Company ending on or
before the Closing Date, except as accrued on the Balance Sheet.
(b) AHC shall prepare and file or cause to be prepared
and filed any Tax Returns of Surviving Corporation covering taxable periods
which begin before the Closing Date and end after the Closing Date ("Straddle
Periods"). The Shareholder shall within fifteen (15) days after payment thereof
and notice of such payment, reimburse, indemnify and hold harmless AHC and the
Surviving Corporation for all Taxes for any Straddle Period, to the extent
related to the portion of the Straddle Period ending on the Closing Date,
except as accrued on the Balance Sheet. For such purposes, the portion of any
Tax attributable to the portions of a Straddle Period ending on the Closing
Date and beginning after the Closing Date shall be determined by apportioning
the Tax for the entire Straddle Period among such periods based on the number
of days in each such period, provided that, in the case of Taxes based upon or
related to income or receipts, such portion shall be the amount of Tax which
would have been due if the relevant Straddle Period ended on the Closing Date.
Any credits relating to a Straddle Period shall be taken into account as though
the relevant Straddle Period ended on the Closing Date. All determinations
necessary to give effect to the foregoing allocations shall be made in a manner
consistent with prior practices of the Company.
(c) The Company, the Shareholder, AHC, Surviving
Corporation and AHC Sub shall reasonably cooperate with each other in
connection with the filing of Tax Returns pursuant to this Section 9.5(c) and
any audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the provision of copies, at the requesting party's
expense, of records and information relevant to any such Tax Return or
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder.
9.6 RIGHT OF SETOFF. In the event of any breach of warranty,
representation, covenant or agreement by the Company or the Shareholder giving
rise to indemnification under Section 9.3 or Section 9.5 hereof, AHC, Surviving
Corporation or AHC Sub shall be entitled to offset the amount of damages
incurred by it as a result of such breach of warranty, representation, covenant
or agreement against any amounts payable by AHC, AHC Sub or Surviving
Corporation, excluding amounts payable under the Employment Agreement attached
hereto as Exhibit B.
-26-
<PAGE> 32
SECTION 10. TERMINATION. This Agreement may be terminated:
(a) at any time by mutual agreement of all parties;
(b) at any time by AHC or AHC Sub if any representation or
warranty of the Company or the Shareholder contained in this Agreement or in
any certificate or other document executed and delivered by the Company or the
Shareholder pursuant to this Agreement is or becomes untrue or breached in any
material respect or if the Company or the Shareholder fails to comply in any
material respect with any covenant or agreement contained herein, and any such
misrepresentation, noncompliance or breach is not cured, waived or eliminated
within twenty (20) days after receipt of written notice thereof;
(c) at any time by the Company or the Shareholder if any
representation or warranty of AHC or AHC Sub contained in this Agreement or in
any certificate or other document executed and delivered by AHC or AHC Sub
pursuant to this Agreement is or becomes untrue in any material respect or AHC
or AHC Sub fails to comply in any material respect with any covenant or
agreement contained herein and such misrepresentation, noncompliance or breach
is not cured, waived or eliminated within twenty (20) days of written notice
thereof; or
(d) by AHC, AHC Sub, the Company or the Shareholder if the merger
contemplated hereby shall not have been consummated by July 30, 1997.
SECTION 11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Each party hereto
recognizes and acknowledges that he had in the past, currently has, and in the
future may possibly have, access to certain confidential information of the
other parties hereto that is valuable, special and unique assets of such other
parties respective businesses. Each party hereto agrees that it will not
disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, unless (i)
such information becomes available to or known by the public generally through
no fault of the disclosing party, (ii) disclosure is required by law or the
order of any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), the disclosing party
shall, if possible, give prior written notice thereof to the other parties
hereto, and provide such other parties hereto with the opportunity to contest
such disclosure, (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party, or (iv) the disclosing party is the sole and exclusive owner
of such confidential information as a result of the transactions contemplated
hereunder or otherwise. In the event of a breach or threatened breach by any
party of the provisions of this Section 11, the other parties shall be entitled
to an injunction restraining such disclosing party from disclosing, in whole or
in part, such confidential information. Nothing herein shall be construed as
prohibiting any non-disclosing party from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages. The
obligations of the parties under this Section 11 shall survive the termination
of this Agreement.
-27-
<PAGE> 33
SECTION 12. MISCELLANEOUS.
12.1 NOTICES. Any communications required or desired to be given
hereunder shall be deemed to have been properly given if sent by hand delivery,
by facsimile or overnight courier, to the parties hereto at the following
addresses, or at such other address as either party may advise the other in
writing from time to time:
If to AHC: If to AHC Sub:
American Homestar Corporation Nationwide N.C. Homes, Inc.
2221 E. Lamar Blvd., Suite 790 2450 South Shore Blvd., Suite 300
Arlington, Texas 76006-7422 League City, Texas 77573
Attn: Laurence A. Dawson Attn: Craig A. Reynolds
Facsimile: (817) 695-0120 Facsimile: (281) 334-9737
with a copy of each notice directed to AHC Sub or AHC to:
Richard F. Dahlson
Jackson & Walker, L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
Facsimile: (214) 953-5822
If to the Company or the Shareholder:
N.C. Mobile Home Corp.
6200 Falls of Neuse Road
Suite 106
Raleigh, North Carolina 27609
Attention: Robert H. Sauls
Facsimile: (919) 878-1760
with a copy to:
W. Sidney Aldridge
Nicholls & Crampton, P.A.
P.O. Box 18237
Raleigh, North Carolina 27619
Facsimile: (919) 782-0465
All such communications shall be deemed to have been delivered on the date of
hand delivery or on the next business day following the deposit of such
communications, properly addressed and postage prepaid with the overnight
courier.
-28-
<PAGE> 34
12.2 FURTHER ASSURANCES; ACCOUNTS RECEIVABLE. Each party hereby
agrees to perform any further acts and to execute and deliver any documents
which may be reasonably necessary to carry out the provisions of this
Agreement. Shareholder shall assist AHC and Surviving Corporation in
collecting the accounts receivable of the Company acquired by AHC and AHC Sub
in connection with this transaction and in the event that the Shareholder shall
receive the proceeds of any such accounts receivable, shall immediately forward
such amounts to Surviving Corporation.
12.3 EACH PARTY TO BEAR COSTS. All Expenses (as defined below)
incurred by AHC and AHC Sub will be borne solely and entirely by AHC and all
Expenses incurred by the Company and the Shareholder will be borne jointly and
severally by the Company and the Shareholder; it being agreed that at the
Closing all Expenses of the Company shall be paid by the Company, but a
corresponding reduction will be paid on a 56% to 44% basis by a reduction in
the Note, on the one hand, and a reduction in the number of shares of AHC
Common Stock issued at the Closing (for purposes of which the number of shares
of AHC Common Stock deliverable at Closing will be reduced at a deemed price of
equal to the greater of (i) the average closing price of AHC Common Stock on
the Nasdaq National Market (as reported in the Wall Street Journal) on the 10
trading days prior to the public announcement of the Merger or (ii) $17.00 per
share, on the other hand, unless at Closing the Shareholder tender such amounts
in cash. "Expenses" as used in this Agreement will include all out-of-pocket
expenses (including, without limitation, all fees and expenses of counsel,
accountants, experts, investment bankers, advisors and consultants to a party
and its affiliates, regulatory fees and finder's fees) incurred by a party or
on its behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement and all other matters
related to the consummation of the transactions contemplated by this Agreement;
provided, however, that one-half ( 1/2) of any costs or expenses for any phase
I environmental testing shall be paid one-half by the Company and one-half by
AHC as incurred and such one-half paid by the Company shall be deemed Expenses
of the Company and subject to payment by the Shareholder as provided above.
12.4 PUBLIC DISCLOSURES. Each party shall keep this Agreement and
its terms confidential, and shall make no press release or public disclosure,
either written or oral, regarding the transactions contemplated by this
Agreement without the prior knowledge and consent of the other parties hereto;
provided that the foregoing shall not prohibit any disclosure (i) by press
release, filing or otherwise that is required by law (including, without
limitation, federal securities laws), regulation or court or administrative
order, (ii) to advisors, financiers or lenders of any party or to any party's
directors, officers, employees and representatives involved in the transactions
contemplated herein or (iii) by Purchaser in connection with obtaining
financing for the transactions contemplated by this Agreement and conducting an
examination of the operations and assets of the Corporation.
12.5 GOVERNING LAW. THIS AGREEMENT SHALL BE INTERPRETED, CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND APPLIED
WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAWS PRINCIPLES.
-29-
<PAGE> 35
12.6 CAPTIONS. The captions or headings in this Agreement are made
for convenience and general reference only and shall not be construed to
describe, define or limit the scope or intent of the provisions of this
Agreement.
12.7 INTEGRATION OF SCHEDULES AND EXHIBITS. All Schedules and
Exhibits attached to this Agreement are integral parts of this Agreement as if
fully set forth herein, and all statements appearing therein shall be deemed
disclosed for all purposes and not only in connection with the specific
representation in which they are explicitly referenced.
12.8 ENTIRE AGREEMENT/AMENDMENT. This instrument, including all
Schedules and Exhibits attached hereto, contains the entire agreement of the
parties and supersedes any and all prior or contemporaneous agreements between
the parties, written or oral, with respect to the transactions contemplated
hereby.
12.9 BINDING EFFECT/ASSIGNMENT. This Agreement shall be binding
on, and shall inure to the benefit of, the parties hereto, and their respective
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No party may assign any right or
obligation hereunder without the prior written consent of the other parties;
provided, however, that AHC Sub, Surviving Corporation and AHC may assign its
rights and obligations hereunder to an affiliate and to their lender or
lenders.
12.10 NO RULE OF CONSTRUCTION. The parties acknowledge that this
Agreement was initially prepared by AHC Sub, and that all parties have read and
negotiated the language used in this Agreement. The parties agree that,
because all parties participated in negotiating and drafting this Agreement, no
rule of construction shall apply to this Agreement which construes ambiguous
language in favor of or against any party by reason of that party's role in
drafting this Agreement.
12.11 COSTS OF ENFORCEMENT. In the event that AHC Sub, Surviving
Corporation or AHC, on the one hand, or the Company or the Shareholder, on the
other hand, files suit in any court against any other party to enforce the
terms of this Agreement against the other party or to obtain performance by it
hereunder, the prevailing party will be entitled to recover all reasonable
costs, including reasonable attorneys' fees, from the other party as part of
any judgment in such suit. The term "prevailing party" shall mean the party in
whose favor final judgment after appeal (if any) is rendered with respect to
the claims asserted in the Complaint.
12.12 AMENDMENTS; WAIVERS. This Agreement may be amended, modified
or supplemented only by an instrument in writing executed by all the parties
hereto. Any waiver of the terms and conditions hereof must be in writing, and
signed by the parties hereto. The waiver of any of the terms and conditions of
this Agreement shall not be construed as a waiver of any other terms and
conditions hereof.
12.13 SEVERABILITY. If any provision of this Agreement shall be
found to be illegal, invalid or unenforceable under present or future laws,
such provision shall be fully severable and this Agreement shall be construed
and enforced as if such provision never comprised a part hereof;
-30-
<PAGE> 36
and the remaining provisions hereof shall remain in full force and effect. In
lieu of such provision, there shall be added automatically as part of this
Agreement, a provision as similar in its terms to such provision as may be
possible and be legal, valid and enforceable.
12.14 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which when so executed shall be deemed to be an original,
and such counterparts shall together constitute and be one and the same
instrument
-31-
<PAGE> 37
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
AMERICAN HOMESTAR CORPORATION
By: /s/ LAURENCE A. DAWSON
-----------------------------
Its: President
----------------------------
NATIONWIDE N.C. HOMES, INC.
By: /s/ F. F. TEETER
-----------------------------
Its: President
----------------------------
N.C. MOBILE HOME CORP.
By: /s/ ROBERT H. SAULS
-----------------------------
Its: President
----------------------------
/s/ ROBERT H. SAULS
-----------------------------
Robert H. Sauls
-32-
<PAGE> 38
INDEX TO EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
A Promissory Note
B Employment Agreement
C Shareholder Release
Schedule
--------
2.1 Corporate Existence; Good Standing
2.3 Permits and Licenses
2.5 Consents
2.6 Financial Statements
2.7 Leases
2.9 Real and Personal Property; Encumbrances
2.11 Patents and Trademarks; Names
2.12 Directors and Officers; Payroll Information
2.14 Contracts (other than Leases)
2.15 Subsequent Events
2.16 Accounts Receivable
2.19 Debt
2.20 Insurance Policies
2.21 Employee Benefit Plans
2.28 Distributions and Repurchases
</TABLE>
<PAGE> 39
<TABLE>
<S> <C>
2.29 Suppliers
2.30 Banking Relations
2.31 Ownership Interests in Interested Persons;
Competitors
2.32 Payors
</TABLE>
<PAGE> 1
EXHIBIT 11
AMERICAN HOMESTAR CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
PRIMARY
Weighted average number of common shares outstanding 9,078,075 9,650,033 10,786,296
Dilutive effect of stock options ...................... 52,227 282,437 448,998
----------- ----------- -----------
Weighted average number of common and common equivalent
shares outstanding ................................. 9,130,302 9,932,470 11,235,294
=========== =========== ===========
Net income $ 7,188,000 $ 9,756,000 $14,692,000
=========== =========== ===========
Earnings per share-primary $ 0.79 $ 0.98 $ 1.31
=========== =========== ===========
FULLY DILUTED
Weighted average number of common shares outstanding 9,078,075 9,650,033 10,786,296
Dilutive effect of stock options ...................... 88,998 457,829 528,408
----------- ----------- -----------
Weighted average number of common and common equivalent
shares outstanding ................................. 9,167,073 10,107,862 11,314,704
=========== =========== ===========
Net income $ 7,188,000 $ 9,756,000 $14,692,000
=========== =========== ===========
Earnings per share-fully diluted $ 0.78 $ 0.97 $ 1.30
=========== =========== ===========
</TABLE>
<PAGE> 1
Exhibit 21
LIST OF SUBSIDIARIES
American Homestar Corporation
Nationwide Housing Systems, Inc.
Nationwide Housing Corporation
Nationwide West, Inc.
Nationwide NC Homes, Inc.
Associated Retailers Group, Inc.
Roadmasters Transport Company, Inc. (51% owned)
American Homestar Financial Services, Inc.
Western Insurance Agency, Inc.
Lifestar Reinsurance, Ltd.
21st Century Mortgage Corporation (50% owned)
Oak Creek Housing Corporation
American Homestar of Burleson, Inc.
American Homestar of Lancaster, Inc.
Oak Creek Homes, Inc.
Heartland Homes, Inc.
Guerdon Holdings, Inc.
Guerdon Homes, Inc.
Brilliant Holding Corporation
Brilliant Carriers, Inc.
Brilliant Homes Corporation
<PAGE> 1
EXHIBIT 23
The Board of Directors
American Homestar Corporation:
We consent to the incorporation by reference in the registration statement (No.
333-2037) on Form S-8 of American Homestar Corporation of our report dated June
26, 1997, relating to the consolidated balance sheets of American Homestar
Corporation and Subsidiaries as of May 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended May 31, 1997, and the related
schedule, which report appears in the May 31, 1997 annual report on Form 10-K
of American Homestar Corporation.
/s/ KPMG PEAT MARWICK LLP
Houston, Texas
August 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000922812
<NAME> AMERICAN HOMESTAR CORPORATION
<MULTIPLIER>1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 43,300,000
<SECURITIES> 0
<RECEIVABLES> 12,387,000
<ALLOWANCES> 0
<INVENTORY> 55,398,000
<CURRENT-ASSETS> 119,955,000
<PP&E> 45,746,000
<DEPRECIATION> 6,476,000
<TOTAL-ASSETS> 193,301,000
<CURRENT-LIABILITIES> 96,529,000
<BONDS> 22,519,000
0
0
<COMMON> 541,000
<OTHER-SE> 72,674,000
<TOTAL-LIABILITY-AND-EQUITY> 193,301,000
<SALES> 313,674,000
<TOTAL-REVENUES> 339,979,000
<CGS> 233,346,000
<TOTAL-COSTS> 310,606,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,714,000
<INCOME-PRETAX> 24,837,000
<INCOME-TAX> 10,101,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,692,000
<EPS-PRIMARY> 1.31
<EPS-DILUTED> 1.30
</TABLE>
