AMERICAN HOMESTAR CORP, 10-Q, 1997-01-14

AMERICAN HOMESTAR CORP
10-Q, 1997-01-14
PREFABRICATED WOOD BLDGS & COMPONENTS

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<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.

Commission File Number 0-24210

AMERICAN HOMESTAR CORPORATION
(Exact name of registrant as specified in its charter)

TEXAS 76-0070846
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)

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)

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 [ ]

The number of shares outstanding of the registrant's Common Stock, par value
$.05 per share, as of January 2, 1997 was 8,630,138.

<PAGE> 2

PART I - FINANCIAL INFORMATION

<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - May 31, 1996 and November 30, 1996 .. 2
Consolidated Statements of Operations - three months ended
November 30, 1995 and 1996 ..................................... 3
Consolidated Statements of Operations - six months ended
November 30, 1995 and 1996 ..................................... 4
Consolidated Statements of Cash Flows - six months ended
November 30, 1995 and 1996 ..................................... 5
Notes to Consolidated Financial Statements ........................ 6

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .......................................... 8

PART II - OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders ............... 13

Item 6. Exhibits and Reports on Form 8-K .................................. 14
</TABLE>

1
<PAGE> 3

PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

<TABLE>
<CAPTION>
MAY 31, NOVEMBER 30,
1996 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash ......................................................... $ 12,178,000 $ 14,391,000
Cash in transit from financial institutions .................. 22,148,000 22,285,000
------------ ------------

Total cash and cash equivalents ........................ 34,326,000 36,676,000
Inventories .................................................. 35,363,000 49,985,000
Accounts receivable .......................................... 5,229,000 11,554,000
Manufacturer incentives receivable ........................... 1,143,000 1,533,000
Deferred tax assets .......................................... -- 4,637,000
Prepaid expenses and other current assets .................... 4,625,000 3,325,000
------------ ------------

Total current assets ................................... 80,686,000 107,710,000
Property, plant and equipment, net .............................. 19,569,000 32,547,000
Goodwill, net ................................................... -- 28,592,000
Investment in affiliate ......................................... 2,435,000 2,501,000
Note receivable ................................................. 3,000,000 --
Other assets .................................................... 3,165,000 3,847,000

------------ ------------
$108,855,000 $175,197,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Floor plan payable ........................................... $ 19,886,000 $ 39,096,000
Accounts payable ............................................. 10,924,000 17,455,000
Accrued expenses ............................................. 12,037,000 24,880,000
Notes payable ................................................ 263,000 1,053,000
------------ ------------

Total current liabilities .............................. 43,110,000 82,484,000
Notes payable, less current installments ........................ 3,663,000 22,499,000
Other long-term liabilities ..................................... 3,358,000 4,669,000
Minority interest in consolidated subsidiary .................... 710,000 823,000
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 8,617,170 and 8,630,138 shares at
May 31, 1996 and November 30, 1996, respectively ........... 431,000 432,000
Additional paid-in capital ................................... 36,112,000 36,216,000
Retained earnings ............................................ 21,471,000 28,074,000
------------ ------------

Total shareholders' equity ............................. 58,014,000 64,722,000

------------ ------------
$108,855,000 $175,197,000
============ ============
</TABLE>

2
<PAGE> 4
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Revenues:
Net sales .............................................. $ 45,478,000 $ 82,903,000
Other revenues ......................................... 5,330,000 6,403,000
------------ ------------

Total revenues ................................... 50,808,000 89,306,000
------------ ------------
Costs and expenses:
Cost of sales .......................................... 33,526,000 62,601,000
Selling, general and administrative .................... 12,861,000 19,437,000
------------ ------------

Total costs and expenses ......................... 46,387,000 82,038,000
------------ ------------

Operating income ................................. 4,421,000 7,268,000
Interest expense .......................................... (718,000) (1,157,000)
Other ..................................................... 51,000 1,000
------------ ------------

Income before items shown below .................. 3,754,000 6,112,000
Income tax expense ........................................ 1,448,000 2,499,000
------------ ------------

Income before items shown below .................. 2,306,000 3,613,000
Earnings (loss) in affiliate .............................. (11,000) 44,000
Minority interest in income of consolidated subsidiary .... (82,000) (72,000)
------------ ------------

Net income ....................................... $ 2,213,000 $ 3,585,000
============ ============

Earnings per common share ................................. $ 0.29 $ 0.40
============ ============

Weighted average number of shares outstanding ............. 7,707,353 8,974,214
============ ============
</TABLE>

3
<PAGE> 5
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30,
------------------------------
1995 1996
------------- -------------
<S> <C> <C>
Revenues:
Net sales .............................................. $ 99,248,000 $ 142,896,000
Other revenues ......................................... 11,216,000 13,116,000
------------- -------------
Total revenues ................................... 110,464,000 156,012,000
------------- -------------
Costs and expenses:
Cost of sales .......................................... 74,233,000 106,801,000
Selling, general and administrative .................... 27,375,000 36,299,000
------------- -------------
Total costs and expenses ......................... 101,608,000 143,100,000
------------- -------------
Operating income ................................. 8,856,000 12,912,000
Interest expense .......................................... (1,408,000) (1,735,000)
Other ..................................................... 80,000 41,000
------------- -------------
Income before items shown below .................. 7,528,000 11,218,000
Income tax expense ........................................ 2,961,000 4,509,000
------------- -------------
Income before items shown below .................. 4,567,000 6,709,000
Earnings (loss) in affiliate .............................. (11,000) 66,000
Minority interest in income of consolidated subsidiary .... (161,000) (172,000)
------------- -------------
Net income ....................................... $ 4,395,000 $ 6,603,000
============= =============

Earnings per common share ................................. $ 0.57 $ 0.74
============= =============

Weighted average number of shares outstanding ............. 7,683,198 8,973,122
============= =============
</TABLE>

4
<PAGE> 6
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income ....................................................... $ 4,395,000 $ 6,603,000
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization .................................. 675,000 1,362,000
Loss (earnings) in affiliate ................................... 11,000 (66,000)
Minority interest in income of consolidated subsidiary ......... 161,000 172,000
Compensation expense on sale of common stock ................... 30,000 23,000
Deferred taxes ................................................. (42,000) 159,000
Change in assets and liabilities, net of acquisitions:
Increase in receivables ...................................... (1,498,000) (1,292,000)
Decrease (increase) in manufacturer incentive receivable ..... 93,000 (391,000)
Increase in inventories ...................................... (3,499,000) (9,692,000)
Decrease (increase) in prepaid expenses and other current
assets ..................................................... (331,000) 1,795,000
Increase in other assets ..................................... (892,000) (1,389,000)
Increase in accounts payable ................................. 485,000 1,117,000
Decrease in accrued expenses and other ....................... (1,126,000) (2,448,000)
Increase in other liabilities ................................ 1,641,000 1,312,000
------------ ------------
Net cash provided by (used in) operating activities ... 103,000 (2,735,000)
------------ ------------

Cash flows from investing activities:
Payment for purchase of acquisitions, net of cash acquired ....... -- (10,196,000)
Purchases of property, plant and equipment ....................... (4,201,000) (2,623,000)
Investment in mortgage affiliate ................................. (2,500,000) --
------------ ------------
Net cash used in investing activities ................. (6,701,000) (12,819,000)
------------ ------------

Cash flows from financing activities:
Borrowings under floor plan payable .............................. 61,899,000 77,497,000
Repayment of floor plan payable .................................. (60,927,000) (67,735,000)
Participations in floor plan payable ............................. 1,293,000 9,448,000
Principal payments on long-term debt ............................. (200,000) (19,343,000)
Borrowings under long-term debt .................................. 911,000 18,014,000
Exercise of stock options ........................................ 31,000 87,000
Other ............................................................ (10,000) (64,000)
------------ ------------
Net cash provided by financing activities ............. 2,997,000 17,904,000
------------ ------------

Net increase (decrease) in cash and cash equivalents ................ (3,601,000) 2,350,000
Cash and cash equivalents, beginning of period ...................... 26,066,000 34,326,000
------------ ------------
Cash and cash equivalents, end of period ............................ $ 22,465,000 $ 36,676,000
============ ============
Noncash investing and financing activity - purchase of property
through the issuance of long-term debt ........................... $ 2,000,000 --
============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest ........................................... $ 1,162,000 $ 2,139,000
Cash paid for income taxes ....................................... 2,654,000 3,643,000
============ ============
</TABLE>

5
<PAGE> 7

AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of
American Homestar Corporation and subsidiaries (the "Company") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Because of the seasonal nature of the Company's business,
operating results for the three and six months ended November 30, 1996, are not
necessarily indicative of the results that may be expected for the fiscal year
ending May 31, 1997. These condensed consolidated financial statements should
be read in conjunction with the financial statements and the notes thereto
included in the Company's latest annual report on Form 10-K.

REPURCHASE AGREEMENTS

The Company has entered into agreements with various financial institutions and
other credit sources under which the Company has agreed to repurchase
manufactured homes sold to independent dealers in the event of default by a
dealer in its obligation to such credit sources. Under the terms of such
agreements, the Company agrees to repurchase manufactured homes at declining
prices over the periods of the agreements (which generally range from twelve to
fifteen months). At November 30, 1996, the Company's contingent repurchase
liability was approximately $35.7 million.

INVENTORIES

A summary of inventories follows:

<TABLE>
<CAPTION>
MAY 31, NOVEMBER 30,
1996 1996
------------ ------------
<S> <C> <C>
Manufactured homes:
New ........................................ $ 29,818,000 $ 37,506,000
Used ....................................... 1,878,000 3,640,000
Furniture and supplies ....................... 1,505,000 2,882,000
Raw materials and work-in-process ............ 2,162,000 5,957,000
------------ ------------
$ 35,363,000 $ 49,985,000
============ ============
</TABLE>

EARNINGS PER SHARE

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 5-for-4 stock split effected on January 18, 1996. Earnings per
common share are computed based on the weighted average number of shares
outstanding during the periods presented and are adjusted for common stock
equivalents when dilutive.

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 $8.9 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, which will
operate under the CHOICENTER or WESTWOOD trade name. The results of the
acquired

6
<PAGE> 8

AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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 the net assets as of the acquisition date of $6.2
million has been recorded as goodwill and is being amortized over 25 years. The
allocation of the purchase price, in certain instances, is based on preliminary
information and is therefore subject to revision when additional information
concerning asset and liability valuations is obtained.

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 acquisition. The excess purchase price over the
estimated fair value of the net assets as of the acquisition date of $22.5
million has been recorded as goodwill and is being amortized over 40 years. The
allocation of the purchase price, in certain instances, is based on preliminary
information and is therefore subject to revision when additional information
concerning asset and liability valuations is obtained.

The estimated fair value of assets acquired and liabilities assumed in these
acquisitions is summarized as follows:

<TABLE>
<S> <C>
Current assets ............................. $ 9,325,000
Property, plant and equipment .............. 11,584,000
Goodwill ................................... 28,669,000
Deferred taxes ............................. 4,165,000
Current liabilities ........................ (20,749,000)
Notes payable .............................. (22,911,000)
------------
$ 10,083,000
============

Consideration:
Cash ..................................... $ 7,150,000
Notes payable ............................ 2,000,000
Acquisition costs ........................ 933,000
------------
$ 10,083,000
============
</TABLE>

Unaudited pro forma results of operations of the Company for the six months
ended November 1995 and 1996, assuming the acquisitions discussed above had been
consummated at June 1, 1995, are as follows:

<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . $170,893,000 $188,196,000
Operating income . . . . . . . . . . . . 10,431,000 13,548,000
Net income before taxes . . . . . . . . 7,819,000 11,298,000
Net income . . . . . . . . . . . . . . . 4,464,000 6,594,000
Earnings per common share . . . . . . . $ 0.58 $ 0.74
============ ============
</TABLE>

On September 24, 1996, the Company established a $25 million credit facility
through Bank One, Texas N.A. These funds, together with the capital raised in
the March 1996 public offering of the Company's common stock, will be used to
support the Company's internal growth strategy as well as the aforementioned
acquisitions. At November 30, 1996, the Company borrowed $18 million of the
available credit facility, which is secured by certain property, plant and
equipment of the Company's manufacturing plants. The Company intends to use the
remaining $7 million in the third quarter to purchase five manufacturing plants
currently under lease.

7
<PAGE> 9

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

This Form 10-Q 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.

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:

o A key element of the Company's growth strategy is to increase 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.

o 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 Mortgage Corporation, the Company's mortgage affiliate
("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 acquisition of Heartland and Guerdon 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.

8
<PAGE> 10

RESULTS OF OPERATIONS

Three months ended November 30, 1996 compared to three months ended November
30, 1995

The following table summarizes certain key sales statistics for the three
months ended November 30, 1995 and 1996:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
--------------------
1995 1996
------- -------
<S> <C> <C>
Company-manufactured new homes sold at retail ........ 496 777
Total new homes sold at retail ....................... 818 1,112
Internalization rate (1) ............................. 61% 70%
Previously-owned homes sold at retail ................ 276 327
Average retail selling price--new homes .............. $43,676 $46,618
Number of retail sales centers at end of period ...... 38 48
Manufacturing shipments .............................. 862 1,780
Manufacturing shipments to independent dealers ....... 215 854
</TABLE>

(1) The internalization rate is the proportion of new homes sold by
Company-owned retail sales centers that are manufactured by the Company.

Net Sales. Net sales of manufactured homes were $82.9 million for the
three months ended November 30, 1996, as compared to $45.5 million for the
three months ended November 30, 1995. Sales from the Company's newly acquired
manufacturing operations were $23.8 million for the three months ended November
30, 1996. On a basis comparable to fiscal 1996, net sales increased 30% to
$59.1 million. This increase was primarily the result of a 32% increase in the
number of new and previously-owned homes sold at retail, a 9% increase in the
number of new homes sold per retail location and a 7% increase in the average
selling price of new homes. The Company added one new retail sales center
during the second quarter of fiscal 1997 in response to continuing increases in
demand for new manufactured homes.

Other Revenues. Transportation revenues for the three months ended
November 30, 1996 were $3.4 million, an increase of 14% over $2.9 million for
the three months ended November 30, 1995. This increase was primarily due to
an increase in transportation activity in response to generally higher demand
for transportation services. Other revenues increased to $3.1 million for the
three months ended November 30, 1996, as compared to $2.4 million for the three
months ended November 30, 1995. This increase was primarily attributable to
increased commissions and premiums generated by the Company's insurance
operations.

Cost of Sales. Cost of manufactured homes sold were $59.8 million (72.2%
of net sales) for the three months ended November 30, 1996, as compared to
$31.1 million (68.4% of net sales) for the three months ended November 30,
1995. Cost of manufactured homes attributable to the newly acquired
manufacturing operations for the three months ended November 30, 1996 were
$20.6 million. On a basis comparable to fiscal 1996, cost of manufactured
homes increased 26% to $39.3 million (66.5% of net sales) for the three months
ended November 30, 1996 from $31.1 million (68.4% of net sales) for the three
months ended November 30, 1995. This increase in cost of sales was primarily
due to higher sales volume. The decrease in cost of sales, expressed as a
percentage of sales, was the result of an increase in the internalization rate
from 61% for the three months ended November 30, 1995, to 70% for the three
months ended November 30, 1996, and increased operating efficiencies at the
Company's three Texas manufacturing facilities. Cost of sales attributable to
transportation operations for the three months ended November 30, 1996 were
$2.8 million (82.3% of transportation revenues), an increase of 15% from $2.4
million (82.1% of transportation revenues) for the three months ended November
30, 1995. This increase was due to increased transportation activity.

9
<PAGE> 11

Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended November 30, 1996, were
$19.4 million (21.8% of total revenues), as compared to $12.9 million (25.3% of
total revenues) for the three months ended November 30, 1995. Selling, general
and administrative expenses attributable to the Company's newly acquired
operations were $2.3 million for the three months ended November 30, 1996. On
a basis comparable to fiscal 1996, selling, general and administrative expenses
were $17.1 million (26.1% of total revenues) for the three months ended
November 30, 1996, as compared to $12.9 million (25.3% of total revenues) for
the three months ended November 30, 1995. This 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 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 61% for the three months ended
November 30, 1995 to 70% for the three months ended November 30, 1996. This
increase was partially offset by a decrease in warranty expenses, expressed as
a percentage of net revenues.

Interest Expense. Interest expense increased 61% to $1.2 million for the
three months ended November 30, 1996, from $718,000 for the three months ended
November 30, 1995. This increase was primarily attributable to increased
borrowings of $18 million under a credit facility established with Bank One,
Texas N.A., which was used to fund the Company's internal growth strategy as
well as fund its acquisition of Guerdon and Heartland, and an increase in floor
plan debt used to support a higher level of inventory due to the opening of new
retail sales centers.

Earnings (Loss) in Affiliate. In fiscal 1996, the Company invested $2.5
million to provide one-half of the initial capitalization of 21st Century, a
mortgage company which provides retail financing to manufactured home buyers.
The Company's proportionate share of 21st Century's earnings (losses) were
($11,000) and $44,000 for the three months ended November 30, 1995 and 1996,
respectively.

Six months ended November 30, 1996 compared to six months ended November 30,
1995

The following table summarizes certain key sales statistics for the six
months ended November 30, 1995 and 1996:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30,
--------------------
1995 1996
------- -------
<S> <C> <C>
Company-manufactured new homes sold at retail ........ 1,004 1,546
Total new homes sold at retail ....................... 1,812 2,265
Internalization rate (1) ............................. 55% 68%
Previously-owned homes sold at retail ................ 497 647
Average retail selling price--new homes ............... $42,859 $45,382
Number of retail sales centers at end of period ...... 38 48
Manufacturing shipments .............................. 1,716 2,806
Manufacturing shipments to independent dealers ....... 481 1,052
</TABLE>

(1) The internalization rate is the proportion of new homes sold by
Company-owned retail sales centers that are manufactured by the Company.

Net Sales. Net sales of manufactured homes were $142.9 million for the
six months ended November 30, 1996, as compared to $99.2 million for the six
months ended November 30, 1995. Sales from the Company's newly acquired
manufacturing operations were $23.8 million for the six months ended November
30, 1996. On a basis comparable to fiscal 1996, net sales increased 20% to
$119.1 million. The increase was primarily the result of a 26% increase in the
number of new and previously-owned homes sold at retail, and a 6%

10
<PAGE> 12

increase in the average selling price of new homes. The Company added four new
retail sales centers during the six months ended November 30, 1996, in response
to continuing increases in demand for new manufactured homes.

Other Revenues. Transportation revenues for the six months ended November
30, 1996 were $7.2 million, an increase of 20% over $6.0 million for the six
months ended November 30, 1995. This increase was primarily due to an increase
in transportation activity in response to generally higher demand for
transportation services. Other revenues increased to $5.9 million for the six
months ended November 30, 1996, as compared to $5.2 million for the six months
ended November 30, 1995. The increase was primarily attributable to increased
commissions and premiums generated by the Company's insurance operations.

Cost of Sales. Cost of manufactured homes sold were $100.9 million (70.6%
of net sales) for the six months ended November 30, 1996, as compared to $69.3
million (69.8% of net sales) for the six months ended November 30, 1995. Cost
of manufactured homes attributable to the newly acquired manufacturing
operations for the six months ended November 30, 1996 were $20.6 million. On a
basis comparable to fiscal 1996, cost of manufactured homes increased 16% to
$80.3 million (67.4% of net sales) for the six months ended November 30, 1996
from $69.3 million (69.8% of net sales) for the six months ended November 30,
1995. The increase in cost of sales was primarily due to higher sales volume.
The decrease in cost of sales, expressed as a percentage of sales, was the
result of an increase in the internalization rate from 55% for the six months
ended November 30, 1995 to 68% for the six months ended November 30, 1996 and
increased operating efficiencies at the Company's three Texas manufacturing
facilities. Cost of sales attributable to transportation operations for the
six months ended November 30, 1996 were $5.9 million (82.6% of transportation
revenues), an increase of 20% from $4.9 million (82.7% of transportation
revenues) for the six months ended November 30, 1995. This increase was due to
increased transportation activity.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six months ended November 30, 1996, were $36.3
million (23.3% of total revenues), as compared to $27.4 million (24.8% of total
revenues) for the six months ended November 30, 1995. Selling, general and
administrative expenses attributable to the Company's newly acquired operations
were $2.3 million for the six months ended November 30, 1996. On a basis
comparable to fiscal 1996, selling, general and administrative expenses were
$34.0 million (25.7% of total revenues) for the six months ended November 30,
1996 as compared to $27.4 million (24.8% of total revenues) for the six months
ended November 30, 1995. 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 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 55% for the six months ended November 30, 1995, to
68% for the six months ended November 30, 1996. This increase was partially
offset by a decrease in warranty expenses, expressed as a percentage of net
revenues.

Interest Expense. Interest expense increased 23% to $1.7 million for the
six months ended November 30, 1996, from $1.4 million for the six months ended
November 30, 1995. This increase was primarily attributable to increased
borrowings during the second quarter of $18 million under a credit facility
established with Bank One, Texas N.A., which was used to fund the Company's
internal growth strategy as well as fund its acquisition of Guerdon and
Heartland, and an increase in floor plan debt used to support a higher level of
inventory due to the opening of new retail sales centers.

Earnings (Loss) in Affiliate. In fiscal 1996, the Company invested $2.5
million to provide one-half of the initial capitalization of 21st Century. The
Company's proportionate share of 21st Century's earnings (losses) were
($11,000) and $66,000 for the six months ended November 30, 1995 and 1996,
respectively.

11
<PAGE> 13

LIQUIDITY AND CAPITAL RESOURCES.

Cash used in operating activities was $2.7 million for the six months
ended November 30, 1996. Net income accounted for the significant cash provided
by operating activities for the six months ended November 30, 1996. Substantial
increases in inventory and other working capital items required to open or
acquire Company-owned retail sales centers accounted for most of the cash used
during these periods. 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 to $1.25 million, primarily
for inventory and working capital. Subject to continued increases in demand,
the Company may incur additional capital expenditures to further increase its
manufacturing capacity. Management currently plans to open or acquire eight to
ten 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 the
Company's retail sales centers and manufacturing operations to substantially
fund the working capital required to open new retail sales centers.

The Company paid approximately $10.2 million in cash, net of cash
acquired, to purchase Guerdon, Heartland and certain operating assets of
Manu-Fac. In addition, the Company had capital expenditures of $2.6 million for
the six months ended November 30, 1996. These expenditures were used primarily
to fund new retail sales centers opened during the quarter and additions to
manufacturing capacity.

The Company has a $100.0 million floor plan credit facility with Ford
Consumer Finance Company, Inc. ("Ford"), with an interest rate of 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 $9.8 million in the first
six months of fiscal 1997. At November 30, 1996, the Company had net borrowings
of $39.1 million (gross borrowings of $58.7 million less participations of
$19.6 million). The Company reduced its participations in its floor plan credit
facility by $9.5 million during the first six months of fiscal 1997,
principally to fund the acquisitions of Guerdon, Heartland and certain
operating assets of Manu-Fac. The Company's participations in its floor plan
credit facility earn interest at Ford's prime rate less .375%, and are
immediately available to the Company in cash. The Company believes that cash
provided by operations and available under its floor plan credit facility well
be sufficient to satisfy working capital and capital expenditure requirements
over the next two years.

12
<PAGE> 14

PART II -- OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its Annual Meeting of Shareholders on October 11, 1996.
The shareholders of the Company voted on and approved the following proposals:

1. The election of eight directors for terms expiring in 1997.
2. The amendment to the Company's 1994 Stock Compensation Plan.
3. The ratification of the selection of KPMG Peat Marwick LLP as the
Company's independent certified public accountants.

The proposals were approved by the following votes:

1. Election of Directors:

<TABLE>
<CAPTION>
NAME FOR WITHHELD
- ----------------- --------- --------
<S> <C> <C>
Finis F. Teeter .......................... 7,280,819 178,722
Laurence A. Dawson, Jr ................... 7,282,381 177,160
Craig A. Reynolds ........................ 7,281,756 177,785
Jackie H. Holland ........................ 7,282,381 177,160
Charles N. Carney, Jr .................... 7,281,444 178,097
James J. Fallon .......................... 7,282,381 177,160
William O. Hunt .......................... 7,282,156 177,385
Jack L. McDonald ......................... 7,282,156 177,385
</TABLE>

2. The amendment to the Company's 1994 Stock Compensation Plan:

For Against Abstain
--- ------- -------
5,760,945 871,751 10,021

3. The ratification of the selection of KPMG Peat Marwick LLP as the
Company's independent certified public accountants:

For Against Abstain
--- ------- -------
7,455,916 1,500 2,125

13
<PAGE> 15

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT REPORT WITH WHICH
DESCRIPTION NO. EXHIBIT WAS FILED
- ----------- ---------- ------------------------------
<S> <C> <C>
Restated Articles of Incorporation of the Company 3.1 S-1 Registration Statement
No. 33-78630
Amended and Restated Bylaws of the Company 3.2 S-1 Registration Statement
No. 33-78630
Specimen Common Stock Certificate 4.1 S-1 Registration Statement
No. 33-78630
Shareholders Agreement, dated as of August 31, 1993, by and among the 4.2 S-1 Registration Statement
Company and certain shareholders of the Company No. 33-78630
Form of Amendment to Shareholders Agreement 4.3 S-1 Registration Statement
No. 33-78630
Employment Agreement, dated as of November 15, 1996 by and between the 10.1 Filed herewith
Company and Finis F. Teeter
Employment Agreement, dated as of November 15, 1996 by and between the 10.2 Filed herewith
Company and Laurence A. Dawson, Jr.
Amendment to Ford Finance Company, Inc. Financing Agreement 10.3 Filed herewith
Statement Re Computation of Per Share Earnings 11 Filed herewith
None 18
None 19
None 22
None 23
None 24
Financial Data Schedules 27 Filed herewith
None 99
</TABLE>

(b) REPORTS ON FORM 8-K - The Company filed a Current Report on Form 8-K on
October 9, 1996, regarding the acquisition of Guerdon Holdings, Inc. The
Current Report on Form 8-K dated October 9, 1996 was amended on Form 8-K/A
and filed on December 6, 1996 to include financial statements of Guerdon
Holdings, Inc. and Pro Forma Financial Information for the transaction.

14
<PAGE> 16
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

AMERICAN HOMESTAR CORPORATION

Date: January 14, 1997 By: /s/ Craig A. Reynolds
----------------------------------------
Craig A. Reynolds
Executive Vice President, Chief Financial
Officer, Secretary and Director (Principal
Financial and Accounting Officer)

15
<PAGE> 17
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
3.1 Restated Articles of Incorporation of the Company
3.2 Amended and Restated Bylaws of the Company
4.1 Specimen Common Stock Certificate
4.2 Shareholders Agreement, dated as of August 31, 1993, by and among the
Company and certain shareholders of the Company
4.3 Form of Amendment to Shareholders Agreement
10.1 Employment Agreement, dated as of November 15, 1996 by and between
the Company and Finis F. Teeter
10.2 Employment Agreement, dated as of November 15, 1996 by and between
the Company and Laurence A. Dawson, Jr.
10.3 Amendment to Ford Finance Company, Inc. Financing Agreement
11 Statement Re Computation of Per Share Earnings
18 None
19 None
22 None
23 None
24 None
27 Financial Data Schedules
99 None
</TABLE>

<PAGE> 1
EXHIBIT 10.1

EMPLOYMENT AGREEMENT

This Employment Agreement (the "Agreement") is made and entered into as
of the 15th day of November, 1996, by and between American Homestar
Corporation, a Texas corporation ("Employer"), and Finis F. Teeter
("Employee"), but shall be effective for all purposes as of October 1, 1996.
This Agreement supersedes and replaces all prior employment agreements by and
between Employer and Employee.

W I T N E S S E T H:

WHEREAS, Employee is the Chairman of the Board and Co-Chief Executive
Officer of Employer and is Chief Executive Officer of Employer's retail
division ("the Retail Division"); and

WHEREAS, Employee and Employer have determined that it is in their
mutual best interests to enter into this Agreement;

NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:

1. Employment. Employer hereby employs Employee and Employee hereby
accepts employment with Employer upon the terms and conditions hereinafter set
forth.

2. Duties. Employee shall perform (i) such management and other
duties as the Chairman of the Board and Co-Chief Executive Officer of a company
that is similar in type and size to Employer and as the Board of Directors of
Employer shall from time to time reasonably request and (ii) such management
and other duties as the Chief Executive Officer of a company that is similar in
type and size to the Retail Division and as the Board of Directors of Employer
shall from time to time reasonably request.

3. Term. The employment of Employee under this Agreement shall
commence on October 1, 1996, and shall continue, unless earlier terminated
pursuant to Section 6 below, until May 31, 2000; provided, however, that this
Agreement shall automatically extend for a one year period on each May 31,
commencing on May 31, 2000, unless either Employer or Employee provides the
other written notice at least 180 days prior to the end of the then existing
term of its intent to terminate this Agreement at the end of the then
applicable term. The initial term of this Agreement and any renewal terms as
provided above are collectively referred to herein as the "Term".

4. Compensation. As compensation for his services rendered under
this Agreement, during the Term Employee shall be entitled to receive the
following:

(a) Salary. Employee shall be paid a yearly salary of
$235,000, payable monthly in equal installments on the fifteenth and
thirtieth days of each month, subject to increase from time to time as
may be determined by the Board of Directors of Employer.
<PAGE> 2
(b) Bonus. Employee shall be paid an annual cash bonus equal
to 2.25% of Bonus Profit, subject to increase from time to time as may
be determined by the Board of Directors of Employer. "Bonus Profit"
shall mean the net consolidated operating profit of Employer after
income tax accruals and employee bonuses (other than bonuses of other
senior officers of Employer or its subsidiaries who are parties to
comparable bonus arrangements with Employer), with the tax rate being
deemed to be the effective combined tax rate for Employer and its
subsidiaries. Each annual bonus shall be paid within five days after
final audited financial statements of Employer have been completed and
delivered to Employer.

(c) Benefits. Employee shall be entitled to receive such
group benefits as Employer may provide to its other employees at
comparable salaries and responsibilities to those of Employee. In
addition, Employee shall be entitled to receive a car allowance of
$750.00 per month, plus all expenses (including gas, oil, maintenance
and insurance).

(d) Stock Options.

(i) As of the date hereof, Employee shall
receive a grant from Employer of 50,000 shares of common
stock of Employer ("Common Stock") pursuant to the terms
of Employer's 1994 Stock Compensation Plan (the "Plan"),
with such options being considered incentive stock options
to the greatest extent possible.

(ii) As soon as possible after the date hereof,
Employee shall receive a grant from Employer of additional
stock options as agreed to by Employee and Employer.

(iii) From time to time during the Term, Employee
shall be entitled to receive additional options to
purchase Common Stock, either inside or outside the Plan,
as may be approved by the Board of Directors of Employer
or any committee thereof.

(e) Expenses. Employer shall pay directly for Employee's car
phone expenses, long distance calling card and ordinary and necessary
business travel and entertainment. In addition, Employer shall
reimburse Employee for all other ordinary and reasonable expenses
incurred by Employee in rendering services required under this Agreement
on a monthly basis upon submission of a detailed monthly statement and
reasonable documentation.

(f) Insurance. Employer will maintain the existing Salary
Continuation Agreement and Disability Compensation Agreement for
Employee. Employer will fund the following insurance policies currently
in place for Employee: (a) term life policy with General American ($1
million), with Charlotte A. Teeter as owner and beneficiary; and (b) a
disability income policy with Paul Revere. Employer agrees that, to the
extent that Employee's benefits (on a dollar-equivalent basis) under
this Section 4(e) are less than those provided to Laurence A. Dawson,
Jr. ("Dawson") under Section 4(e) of his

2
<PAGE> 3
Employment Agreement with Employer, then Employer shall provide Employee
other benefits comparable to those provided to Dawson (or equivalent
compensation).

5. Confidentiality.

(a) Acknowledgment of Proprietary Interest. Employee
recognizes the proprietary interest of Employer and its affiliates in
any Trade Secrets (as hereinafter defined) of Employer and its
affiliates. Employee acknowledges and agrees that any and all Trade
Secrets learned by Employee during the course of his engagement by
Employer shall be and is the property of Employer and its affiliates.
Employee further acknowledges and understands that his disclosure of any
Trade Secrets and/or proprietary information may result in irreparable
injury and damage to Employer and its affiliates. As used herein,
"Trade Secrets" means all confidential and proprietary information of
Employer and its affiliates, including, without limitation, information
derived from reports, investigations, experiments, research, work in
progress, drawings, designs, plans, proposals, codes, marketing and
sales programs, client lists, client mailing lists, financial
projections, cost summaries, pricing formula, and all other concepts,
ideas, materials, or information prepared or performed for or by
Employer or its affiliates.

(b) Covenant Not-to-Divulge Trade Secrets. Employee
acknowledges and agrees that Employer and its affiliates are entitled to
prevent the disclosure of Trade Secrets. Employee agrees at all times
during the Term to hold in strict confidence and not to disclose or
allow to be disclosed to any person, firm or corporation, other than to
persons engaged by Employer and its affiliates to further the business
of Employer and its affiliates.

(c) Return of Materials at Termination. In the event of any
termination or cessation of his employment with Employer for any reason
whatsoever, Employee shall, upon the written request of Employer,
promptly deliver to Employer all documents, data and other information
pertaining to Trade Secrets. Employee shall not take any documents or
other information, or any reproduction or excerpt thereof, containing or
pertaining to any Trade Secrets.

(d) Competition During Employment. Employee agrees that
during the Term, neither he, nor any of his affiliates, will directly or
indirectly compete with Employer or its affiliates in any way, and that
he will not act as an officer, director, employee, consultant,
shareholder, lender, or agent of any entity which is engaged in any
business of the same nature as, or in competition with, the businesses
in which Employer and its affiliates are now engaged or in which
Employer or its affiliates become engaged during the Term; provided,
however, that this Section 5(d) shall not prohibit Employee or any of
his affiliates from (i) serving as a director (or similar capacity) of
any entity which is not in direct competition with Employer or its
affiliates or (ii) purchasing or holding an aggregate equity interest of
up to 5%, so long as Employee and his affiliates combined do not
purchase or hold an aggregate equity interest of more than 5%, in any
business in competition with Employer and its affiliates.

3
<PAGE> 4
(e) Competition Following Employment. If this Agreement is
terminated for any reason, then Employee agrees that for a period of one
(1) year after such termination or cessation of his employment with
Employer, neither Employee, nor any of his affiliates, shall, directly
or indirectly, for itself or himself or on behalf of any other
corporation, person, firm, partnership, association, or any other entity
(whether as an individual, agent, servant, employee, employer, officer,
director, shareholder, investor, principal, consultant or in any other
capacity):

(i) engage or participate in any business which engages
in competition with such businesses being conducted
by Employer or any of its affiliates during the
Term anywhere in the United States; provided,
however, that this Section 5(e) shall not prohibit
Employee or any of his affiliates from (i) serving
as a director (or similar capacity) of any entity
which is not in direct competition with Employer or
its affiliates or (ii) purchasing or holding an
aggregate equity interest of up to 5%, so long as
Employee and his affiliates combined do not
purchase or hold an aggregate equity interest of
more than 5%, in any business in competition with
Employer;

(ii) induce or attempt to influence any employee of
Employer or its affiliates to terminate his/her
employment; or

(iii) assist or finance any person or entity in any
manner or in any way inconsistent with the intents
and purposes of this Agreement.

Notwithstanding the above, in the event this Agreement is terminated for any
reason other than "just cause", Employee may terminate this Section 5 upon
written notice to Employer, in which event Employer's obligation to pay any
remaining post-termination compensation payable to Employee under the last
paragraph of Section 6 below shall thereafter terminate.

6. Termination. This Agreement and the employment relationship
created hereby shall terminate upon the occurrence of any of the following
events:

(a) The expiration of the Term as set forth in Section 3
above;

(b) The death of Employee;

(d) Resignation by Employee;

(e) Written notice to Employee from Employer of termination
for "just cause" (as hereinafter defined); or

(f) Written notice to Employee from Employer of termination
for any reason other than as set forth in this Section 6.

4
<PAGE> 5
For purposes of Section 6(c) above, the "disability" of Employee shall
mean his inability, because of mental or physical illness or incapacity, to
perform his duties under this Agreement for a continuous period of 120 days or
for 120 days out of a 150-day period. For purposes of Section 6(e) above,
"just cause" shall mean: (a) adjudication by a court of competent jurisdiction
that Employee (i) breached his fiduciary duty for personal profit or (ii) is
liable for gross negligence or intentional misconduct in the performance of his
duties to Employer, and, in either case, such adjudication is no longer subject
to direct appeal; (b) conviction of Employee of a felony involving fraud or
moral turpitude by a court of competent jurisdiction; or (c) Employee's
material breach of any material term of this Agreement, and such breach
continues for more than thirty (30) days after written notice of such breach is
delivered to Employee by Employer.

In the event of the termination of Employee's employment pursuant to
Sections 6(b), (c) or (e) above, Employee shall be entitled only to the
compensation earned by him, or accrued for his benefit (with any bonuses
accruing on a daily basis) as of the date of termination. If Employee's
employment is terminated pursuant to Section 6(f) above, Employee shall be
entitled to receive the compensation payable pursuant to Section 4 above as if
no termination had occurred, and after the end of such payments, Employee shall
be paid over the next one-year period an amount equal to his salary and bonus
for such period as if Employee had been employed for such period. If this
Agreement is terminated pursuant to Section 6(a) above or resigns pursuant to
Section 6(d) above, then Employee shall be paid over a one-year period
immediately following such termination, an amount equal to his salary and bonus
for such period as if Employee had been employed for such period.

7. Remedies. Employee recognizes and acknowledges that in the event
of any default in, or breach of any of, the terms, conditions or provisions of
this Agreement by Employee, Employer's remedies at law shall be inadequate.
Accordingly, Employee agrees that in such event, Employer shall have the right
of specific performance and/or injunctive relief in addition to any and all
other remedies and rights at law or in equity, and such rights and remedies
shall be cumulative.

8. Acknowledgments. Employee acknowledges and recognizes that the
enforcement of any of the provisions set forth in Section 5 above by Employer
will not interfere with Employee's ability to pursue a proper livelihood.
Employee recognizes and agrees that the enforcement of this Agreement is
necessary to ensure the preservation and continuity of the business and
goodwill of Employer.

9. Notices. Any notices, consents, demands, requests, approvals and
other communications to be given under this Agreement by either party to the
other shall be deemed to have been duly given if given in writing and
personally delivered or sent by mail, registered or certified, postage prepaid
with return receipt requested, as follows:

5
<PAGE> 6
If to Employer: American Homestar Corporation
2450 South Shore Boulevard, Suite 300
League City, Texas 77573
Attention: President

If to Employee: Finis F. Teeter
16410 Brookforest Drive
Houston, Texas 77058

Notices delivered personally shall be deemed communicated as of actual receipt;
mailed notices shall be deemed communicated as of three days after mailing.

10. Entire Agreement. This Agreement contains the entire agreement
of the parties hereto and supersedes all prior agreements and understandings,
oral or written between the parties hereto, including, without limitation, that
certain Employment Agreement, dated as of May 3, 1994, by and between Employer
and Employee. No modification or amendment of any of the terms, conditions or
provisions herein may be made otherwise than by written agreement signed by the
parties hereto.

11. Governing Law. This Agreement and the rights and obligations of
the parties hereto shall be governed, construed and enforced in accordance with
the laws of the State of Texas.

12. Parties Bound. This Agreement and the rights and obligations
hereunder shall be binding upon and inure to the benefit of Employer and
Employee, and their respective heirs, personal representatives, successors and
assigns. Employer shall have the right to assign this Agreement to any
affiliate or to its successors or assigns. The terms "successors" and
"assigns" shall include any person, corporation, partnership or other entity
that buys all or substantially all of Employer's assets or all of its stock, or
with which Employer merges or consolidates. The rights, duties or benefits to
Employee hereunder are personal to him, and no such right or benefit may be
assigned by him. The parties hereto acknowledge and agree that Employer's
affiliates are third-party beneficiaries of the covenants and agreements of
Employee set forth in Sections 5 and 6 above.

13. Estate. If Employee dies prior to the payment of all sums owed,
or to be owed, to Employee pursuant to Section 4 above, then such sums, as they
become due, shall be paid to Employee's estate.

14. Enforceability. If, for any reason, any provision contained in
this agreement should be held invalid in part by a court of competent
jurisdiction, then it is the intent of each of the parties hereto that the
balance of this Agreement be enforced to the fullest extent permitted by
applicable law. Accordingly, should a court of competent jurisdiction
determine that the scope of any covenant is too broad to be enforced as
written, it is the intent of each of the parties that the court should reform
such covenant to such narrower scope as it determines enforceable.

6
<PAGE> 7
15. Waiver of Breach. The waiver by any party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach by any party.

16. Captions. The captions in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.

17. Costs. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which he or it may be entitled.

18. Affiliate. An "affiliate" of any party hereto shall mean any
person controlling, controlled by or under common control with such party.

19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument, but only one of which need be produced.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.

EMPLOYER:
--------

AMERICAN HOMESTAR CORPORATION

By: /s/ Laurence A. Dawson, Jr.
---------------------------------
Laurence A. Dawson, Jr.,
Co-Chief Executive Officer and
President

EMPLOYEE:
--------

/s/ Finis F. Teeter
-------------------------------------
Finis F. Teeter

<PAGE> 1
EXHIBIT 10.2

EMPLOYMENT AGREEMENT

This Employment Agreement (the "Agreement") is made and entered into as
of the 15th day of November, 1996, by and between American Homestar
Corporation, a Texas corporation ("Employer"), and Laurence A. Dawson, Jr.
("Employee"), but shall be effective for all purposes as of October 1, 1996.
This Agreement supersedes and replaces all prior employment agreements by and
between Employer and Employee.

W I T N E S S E T H:

WHEREAS, Employee is the President and Co-Chief Executive Officer of
Employer and is Chief Executive Officer of Employer's manufacturing division
(the "Manufacturing Division"); and

WHEREAS, Employee and Employer have determined that it is in their
mutual best interests to enter into this Agreement;

1. Employment. Employer hereby employs Employee and Employee hereby
accepts employment with Employer upon the terms and conditions hereinafter set
forth.

2. Duties. Employee shall perform (i) such management and other
duties as the President and Co-Chief Executive Officer of a company that is
similar in type and size to Employer and as the Board of Directors of Employer
shall from time to time reasonably request and (ii) such management and other
duties as the Chief Executive Officer of a company that is similar in type and
size to the Manufacturing Division and as the Board of Directors of Employer
shall from time to time reasonably request.

3. Term. The employment of Employee under this Agreement shall
commence on October 1, 1996, and shall continue, unless earlier terminated
pursuant to Section 6 below, until May 31, 2000; provided, however, that this
Agreement shall automatically extend for a one year period on each May 31,
commencing on May 31, 2000, unless either Employer or Employee provides the
other written notice at least 180 days prior to the end of the then existing
term of its intent to terminate this Agreement at the end of the then
applicable term. The initial term of this Agreement and any renewal term as
provided above are collectively referred to herein as the "Term".

4. Compensation. As compensation for his services rendered under
this Agreement, during the Term Employee shall be entitled to receive the
following:

(d) Stock Options.

(ii) As of the date hereof, Employee shall
receive a grant from Employer of additional stock options
as agreed to by Employee and Employer.

(iii) As soon as possible after the date hereof,
Employee shall be entitled to receive additional options to
purchase Common Stock, either inside or outside the Plan,
as may be approved by the Board of Directors of Employer or
any committee thereof.

(f) Insurance. Employer will maintain the existing Salary
Continuation Agreement and Disability Compensation Agreement for
Employee. Employer will fund the following insurance policies currently
in place for Employee: (a) disability insurance policy; (b) whole life
insurance policy, of which Employee's life insurance trust is the
beneficiaries; and (c) key-man life insurance policy, of which Oak Creek
Homes, Inc. ("OCH") is the beneficiary.

2
<PAGE> 3
5. Confidentiality.

(e) Competition Following Employment. If this Agreement is
terminated for any reason, then Employee agrees that for a period of one
(1) year after such termination or cessation of his employment with
Employer, neither Employee, nor any of his

3
<PAGE> 4
affiliates, shall, directly or indirectly, for itself or himself or on
behalf of any other corporation, person, firm, partnership, association,
or any other entity (whether as an individual, agent, servant, employee,
employer, officer, director, shareholder, investor, principal,
consultant or in any other capacity):

(ii) induce or attempt to influence any employee of
Employer or its affiliates to terminate his/her
employment; or

(iii) assist or finance any person or entity in any
manner or in any way inconsistent with the intents
and purposes of this Agreement.

6. Termination. This Agreement and the employment relationship
created hereby shall terminate upon the occurrence of any of the following
events:

(a) The expiration of the Term as set forth in Section 3
above;

(b) The death of Employee;

(d) Resignation by Employee;

(e) Written notice to Employee from Employer of termination
for "just cause" (as hereinafter defined); or

(f) Written notice to Employee from Employer of termination
for any reason other than as set forth in this Section 6.

For purposes of Section 6(c) above, the "disability" of Employee shall
mean his inability, because of mental or physical illness or incapacity, to
perform his duties under this Agreement

4
<PAGE> 5
for a continuous period of 120 days or for 120 days out of a 150-day period.
For purposes of Section 6(e) above, "just cause" shall mean (a) adjudication by
a court of competent jurisdiction that Employee (i) breached his fiduciary duty
for personal profit or (ii) is liable for gross negligence or intentional
misconduct in the performance of his duties to Employer, and, in either case,
such adjudication is no longer subject to direct appeal; (b) conviction of
Employee of a felony involving fraud or moral turpitude by a court of competent
jurisdiction; or (c) Employee's material breach of any material term of this
Agreement, and such breach continues for more than thirty (30) days after
written notice of such breach is delivered to Employee by Employer.

In the event of the termination of Employee's employment pursuant to
Sections 6(b), (c) or (e) above, Employee shall be entitled only to the
compensation earned by him, or accrued for his benefit (with any bonuses
accruing on a daily basis) as of the date of termination. If Employee's
employment is terminated pursuant to Section 6(f) above, Employee shall be
entitled to receive the compensation payable pursuant to Section 4 above as if
no termination had occurred, and after the end of such payments, Employee shall
be paid over the next one-year period an amount equal to his salary and bonus
for such period as if Employee has been employed for such period. If this
Agreement is terminated pursuant to Section 6(a) above or resigns pursuant to
Section 6(d) above, then Employee shall be paid over a one-year period
immediately following such termination, an amount equal to his salary and bonus
for such period as if Employee had been employed for such period.

If to Employer: American Homestar Corporation
2450 South Shore Boulevard, Suite 300
League City, Texas 77573
Attention: Chairman of the Board

5
<PAGE> 6
If to Employee: Laurence A. Dawson, Jr.
17919 Cedar Creek Canyon
Dallas, Texas 75252

Notices delivered personally shall be deemed communicated as of actual receipt;
mailed notices shall be deemed communicated as of three days after mailing.

10. Entire Agreement. This Agreement contains the entire agreement
of the parties hereto and supersedes all prior agreements and understandings,
oral or written between the parties hereto. No modification or amendment of
any of the terms, conditions or provisions herein may be made otherwise than by
written agreement signed by the parties hereto.

11. Governing Law. This Agreement and the rights and obligations of
the parties hereto shall be governed, construed and enforced in accordance with
the laws of the State of Texas.

13. Estate. If Employee dies prior to the payment of all sums owed,
or to be owed, to Employee pursuant to Section 4 above, then such sums, as they
become due, shall be paid to Employee's estate.

15. Waiver of Breach. The waiver by any party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach by any party.

6
<PAGE> 7
16. Captions. The captions in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.

18. Affiliate. An "affiliate" of any party hereto shall mean any
person controlling, controlled by or under common control with such party.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.

EMPLOYER:
--------

AMERICAN HOMESTAR CORPORATION

By: /s/ Finis F. Teeter
----------------------------------
Finis F. Teeter,
Co-Chief Executive Officer

EMPLOYEE:
--------

/s/ Laurence A. Dawson, Jr.
-------------------------------------
Laurence A. Dawson, Jr.

<PAGE> 1
EXHIBIT 10.3

[Ford Consumer Finance Company, Inc. Letterhead]

November 8, 1996

Mr. Craig A. Reynolds
American Homestar Corporation
2450 South Shore Blvd., Suite 300
League City, Texas 77573

Dear Craig:

Please be advised that Ford Consumer Finance Company, Inc. has approved and
established the following credit limits for Nationwide Housing Systems/American
Homestar Corporation.

$100,000,000 Stock and Pre-sold Inventory
$ 5,000,000 Interim Construction - Land/Home
$ 25,000,000 Contingent Stock and Pre-sold Inventory for AHCs
Franchise Network of Retailers
60% AHC's Participation Balance as a ratio of Nationwide's
Stock and Pre-sold Inventory Balance

We appreciate the opportunity to provide American Homestar Corporation and its
wholly-owned Nationwide Housing Systems, Inc. with these credit facilities. I
am confident these facilities will provide 100% support for the anticipated
growth of your operations throughout 1997. As always we will monitor the
adequacy based on actual growth and we are prepared to review any increases
that may be required.

Thanks for your business and as your sole floorplan lender we are proud to
support the continued growth of your owned and franchised operations. If you
have any questions, please do not hesitate to contact me.

Sincerely,

/s/ F. Norton Wells, Jr.

F. Norton Wells, Jr.

cc: R. A. Macri L.A. Dawson, Jr.
J. H. Summers F. F. Teeter

<PAGE> 1
EXHIBIT 11

AMERICAN HOMESTAR CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
Weighted average number of common shares outstanding ......... 7,543,773 8,627,395

Dilutive effect of stock options ............................. 163,580 346,819
---------- ----------

Weighted average number of common and common equivalent shares
outstanding ............................................. 7,707,353 8,974,214
========== ==========

Net income ................................................... $2,213,000 $3,585,000
========== ==========

Earnings per common share-primary ............................ $ 0.29 $ 0.40
========== ==========

<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
Weighted average number of common shares outstanding ......... 7,543,773 8,627,395

Dilutive effect of stock options ............................. 192,366 289,647
---------- ----------

Weighted average number of common and common equivalent shares
outstanding ............................................. 7,736,139 8,917,042
========== ==========

Net income ................................................... $2,213,000 $3,585,000
========== ==========

Earnings per common share-fully diluted ...................... $ 0.29 $ 0.40
========== ==========

<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
Weighted average number of common shares outstanding ......... 7,543,033 8,623,035

Dilutive effect of stock options ............................. 140,165 350,087
---------- ----------

Weighted average number of common and common equivalent shares
outstanding ............................................. 7,683,198 8,973,122
========== ==========

Net income ................................................... $4,395,000 $6,603,000
========== ==========

Earnings per common share-primary ............................ $ 0.57 $ 0.74
========== ==========

<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
Weighted average number of common shares outstanding ......... 7,543,033 8,623,035

Dilutive effect of stock options ............................. 192,366 287,204
---------- ----------

Weighted average number of common and common equivalent shares
outstanding ............................................. 7,735,399 8,910,239
========== ==========

Net income ................................................... $4,395,000 $6,603,000
========== ==========

Earnings per common share-fully diluted ...................... $ 0.57 $ 0.74
========== ==========
</TABLE>

<ARTICLE> 5
<CIK> 0000922812
<NAME> AMERICAN HOMESTAR CORPORATION

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 36,676,000
<SECURITIES> 0
<RECEIVABLES> 11,554,000
<ALLOWANCES> 0
<INVENTORY> 49,985,000
<CURRENT-ASSETS> 107,710,000
<PP&E> 38,317,000
<DEPRECIATION> (5,770,000)
<TOTAL-ASSETS> 175,197,000
<CURRENT-LIABILITIES> 82,484,000
<BONDS> 0
0
0
<COMMON> 432,000
<OTHER-SE> 64,290,000
<TOTAL-LIABILITY-AND-EQUITY> 175,197,000
<SALES> 142,896,000
<TOTAL-REVENUES> 156,012,000
<CGS> 106,801,000
<TOTAL-COSTS> 143,100,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,735,000
<INCOME-PRETAX> 11,218,000
<INCOME-TAX> 4,509,000
<INCOME-CONTINUING> 6,709,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,603,000
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.74

</TABLE>