<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 February 28, 1998
or
[ ] 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 [ ]
Number of shares outstanding of each of the issuer's classes of common stock, as
of April 2, 1998.
Common Stock, Par Value $.05 Per Share 17,270,820
<PAGE> 2
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - May 31, 1997 and February 28, 1998....................... 2
Consolidated Statements of Operations - three months ended
February 28, 1997 and 1998.......................................................... 3
Consolidated Statements of Operations - nine months ended
February 28, 1997 and 1998.......................................................... 4
Consolidated Statements of Cash Flows - nine months ended
February 28, 1997 and 1998.......................................................... 5
Notes to Consolidated Financial Statements............................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................... 10
Item 3. Legal Proceedings...................................................................... 15
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.................................... 16
Item 6. Exhibits and Reports on Form 8-K....................................................... 17
</TABLE>
1
<PAGE> 3
PART I -- FINANCIAL INFORMATION
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1997 1998
------------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash ................................................................. $ 17,209,000 $ 19,989,000
Cash in transit from financial institutions .......................... 26,139,000 28,543,000
------------ ------------
Total cash and cash equivalents ................................ 43,348,000 48,532,000
Inventories .......................................................... 58,209,000 67,605,000
Accounts receivable .................................................. 13,807,000 22,211,000
Deferred tax asset ................................................... 4,604,000 4,192,000
Prepaid expenses and other current assets ............................ 7,267,000 8,341,000
------------ ------------
Total current assets ........................................... 127,235,000 150,881,000
Property, plant and equipment, net ...................................... 47,581,000 52,594,000
Goodwill ................................................................ 30,280,000 36,110,000
Investment in affiliate ................................................. 3,675,000 3,390,000
Other assets ............................................................ 2,250,000 3,152,000
============ ============
$211,021,000 $246,127,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Floor plan payable, net of participations ............................ $ 46,282,000 $ 30,888,000
Accounts payable ..................................................... 21,474,000 22,923,000
Accrued expenses ..................................................... 22,703,000 28,446,000
Accrued warranty costs ............................................... 6,356,000 6,315,000
Notes payable and capital leases ..................................... 6,160,000 1,167,000
------------ ------------
Total current liabilities ...................................... 102,975,000 89,739,000
Notes payable and capital leases, less current installments ............. 29,136,000 63,231,000
Deferred tax liability .................................................. 235,000 199,000
Minority interest in consolidated subsidiary ............................ 966,000 1,082,000
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 16,945,827 and 17,270,820 shares at
May 31, 1997 and February 28, 1998, respectively ................... 848,000 863,000
Additional paid-in capital ........................................... 39,735,000 43,445,000
Retained earnings .................................................... 37,126,000 47,568,000
------------ ------------
Total shareholders' equity ..................................... 77,709,000 91,876,000
============ ============
$211,021,000 $246,127,000
============ ============
</TABLE>
2
<PAGE> 4
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED FEBRUARY 28,
---------------------------------
1997 1998
------------- -------------
<S> <C> <C>
Revenues:
Net sales ......................................... $ 95,734,000 $ 107,103,000
Other revenues .................................... 5,838,000 10,216,000
------------- -------------
Total revenues .............................. 101,572,000 117,319,000
------------- -------------
Costs and expenses:
Cost of sales ..................................... 72,999,000 76,675,000
Selling, general and administrative ............... 21,212,000 31,416,000
------------- -------------
Total costs and expenses .................... 94,211,000 108,091,000
------------- -------------
Operating income ............................ 7,361,000 9,228,000
Interest expense ..................................... (1,738,000) (1,869,000)
Other ................................................ 71,000 (21,000)
------------- -------------
Income before items shown below ............. 5,694,000 7,338,000
Income tax expense ................................... 2,284,000 3,017,000
------------- -------------
Income before items shown below ............. 3,410,000 4,321,000
Earnings in affiliate ................................ 46,000 198,000
Minority interest in income of consolidated subsidiary (35,000) (39,000)
------------- -------------
Net income .................................. $ 3,421,000 $ 4,480,000
============= =============
Earnings Per Share - Basic ........................... $ 0.20 $ 0.26
============= =============
Earnings Per Share - Diluted ......................... $ 0.19 $ 0.25
============= =============
</TABLE>
3
<PAGE> 5
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED FEBRUARY 28,
---------------------------------
1997 1998
------------- -------------
<S> <C> <C>
Revenues:
Net sales ............................................... $ 274,343,000 $ 344,847,000
Other revenues .......................................... 18,954,000 22,219,000
------------- -------------
Total revenues .................................... 293,297,000 367,066,000
------------- -------------
Costs and expenses:
Cost of sales ........................................... 209,158,000 253,581,000
Selling, general and administrative ..................... 62,811,000 85,066,000
Acquisition costs ....................................... -- 2,425,000
------------- -------------
Total costs and expenses .......................... 271,969,000 341,074,000
------------- -------------
Operating income .................................. 21,328,000 25,994,000
Interest expense ........................................... (3,998,000) (5,501,000)
Other ...................................................... 251,000 (29,000)
------------- -------------
Income before items shown below ................... 17,581,000 20,464,000
Income tax expense ......................................... 7,042,000 9,267,000
------------- -------------
Income before items shown below ................... 10,539,000 11,197,000
Earnings in affiliate ...................................... 112,000 684,000
Minority interest in income of consolidated subsidiary ..... (207,000) (127,000)
------------- -------------
Income before extraordinary item .................. 10,444,000 11,754,000
Extraordinary loss from early extinguishment of debt (net of
income tax benefit of $423,000) ......................... -- (634,000)
============= =============
Net income ........................................ $ 10,444,000 $ 11,120,000
============= =============
Earnings Per Share - Basic:
Income before extraordinary item ...................... $ 0.62 $ 0.69
Extraordinary loss, net of income tax benefit ......... -- (0.04)
============= =============
Net income ........................................ $ 0.62 $ 0.65
============= =============
Earnings Per Share - Diluted:
Income before extraordinary item ...................... $ 0.60 $ 0.66
Extraordinary loss, net of income tax benefit ......... -- (0.04)
============= =============
Net income ........................................ $ 0.60 $ 0.62
============= =============
</TABLE>
4
<PAGE> 6
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED FEBRUARY 28,
---------------------------------
1997 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................... $ 10,444,000 $ 11,120,000
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Net loss of Brilliant ........................................ -- (678,000)
Depreciation and amortization ................................ 2,743,000 3,983,000
Earnings in affiliate ........................................ (112,000) (684,000)
Minority interest in income of consolidated subsidiary ....... 207,000 127,000
Compensation expense on sale of common stock ................. 23,000 --
Deferred taxes ............................................... 52,000 375,000
Change in assets and liabilities, net of acquisitions:
Increase in accounts receivable ............................ (5,852,000) (8,112,000)
Increase in inventories .................................... (8,827,000) (1,185,000)
Decrease (increase) in prepaid expenses and other current
assets.................................................. 888,000 (1,016,000)
Increase (decrease) in other assets ........................ (1,733,000) 150,000
Increase in accounts payable ............................... 1,304,000 1,007,000
(Decrease) increase in accrued expenses .................... (2,526,000) 5,367,000
Increase in other liabilities .............................. 1,962,000 --
------------- -------------
Net cash (used in) provided by operating activities . (1,427,000) 10,454,000
------------- -------------
Cash flows from investing activities:
Purchases of property, plant and equipment ..................... (10,217,000) (7,248,000)
Payment for acquisitions, net of cash acquired ................. (4,164,000) (1,987,000)
------------- -------------
Net cash used in investing activities ............... (14,381,000) (9,235,000)
------------- -------------
Cash flows from financing activities:
Borrowings under floor plan payable ............................ 107,977,000 114,656,000
Repayment of floor plan payable ................................ (97,908,000) (115,099,000)
Participations in floor plan payable ........................... 9,059,000 (23,623,000)
Principal payments on long-term debt ........................... (20,233,000) (33,720,000)
Borrowings under long-term debt ................................ 20,309,000 61,000,000
Exercise of stock options ...................................... 112,000 762,000
Other .......................................................... (64,000) (11,000)
------------- -------------
Net cash provided by financing activities ........... 19,252,000 3,976,000
------------- -------------
Net increase in cash and cash equivalents ......................... 3,444,000 5,184,000
Cash and cash equivalents, beginning of period .................... 33,149,000 43,348,000
------------- -------------
Cash and cash equivalents, end of period .......................... $ 36,593,000 $ 48,532,000
============= =============
Supplemental disclosures of cash flow information:
Cash paid for interest ......................................... $ 4,081,000 $ 5,143,000
Cash paid for income taxes ..................................... 6,101,000 7,300,000
============= =============
</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. On June 10, 1997, the Company completed the acquisition of Brilliant
Holding Corporation ("Brilliant"). This transaction was accounted for as a
pooling of interests; accordingly, the accompanying consolidated financial
statements have been restated to include the results of Brilliant for all
periods presented. Because of the seasonal nature of the Company's business,
operating results for the three and nine months ended February 28, 1998 are not
necessarily indicative of the results that may be expected for the fiscal year
ending May 31, 1998. 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.
BUSINESS COMBINATIONS
On June 10, 1997, Brilliant was acquired by the Company, and 711,149 shares
of the Company's common stock and options to purchase 38,852 shares of the
Company's common stock were issued in exchange for all of Brilliant's
outstanding common stock and options. This transaction was accounted for as a
pooling of interests. Prior to the acquisition, Brilliant used a fiscal year
ending on December 31. The financial statements for the three and nine months
ended February 28, 1998 combine each company's three and nine months ended
February 28 1998. The restated financial statements for the three and nine
months ended February 28, 1997 combine the Company's financial statements for
the three and nine months ended February 28, 1997 with Brilliant's financial
statements for the three and nine months ended September 30, 1996. Due to the
different fiscal year ends, retained earnings includes an adjustment to record
Brilliant's net loss for the five months ended May 31, 1997, which will not be
included in the restated financial statements for any fiscal period.
A summary of Brilliant's results of operations for the five months ended
May 31, 1997 follows:
<TABLE>
<S> <C>
Net sales........................... $ 28,984,000
Total costs and expenses............ $ 29,845,000
Net loss............................ $ (678,000)
===============
</TABLE>
A reconciliation of revenues and net income of the combined entities as
restated for the three and nine months ended February 28, 1997 follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, 1997 FEBRUARY 28, 1997
------------------ ------------------
<S> <C> <C>
Revenues:
American Homestar .......... $ 84,389,000 $240,401,000
Brilliant .................. 17,183,000 52,896,000
------------ ------------
Combined ................ $101,572,000 $293,297,000
============ ============
Net income:
American Homestar .......... $ 3,110,000 $ 9,713,000
Brilliant .................. 311,000 731,000
------------ ------------
Combined ................ $ 3,421,000 $ 10,444,000
============ ============
</TABLE>
Adjustments to conform Brilliant's method of accounting for inventory and
accrued warranty costs with that of the Company reduced net income for
the three and nine months ended February 28, 1997 by $66,000 and $285,000,
respectively.
6
<PAGE> 8
On June 16, 1997, the Company completed the acquisition of N.C. Mobile Home
Corporation (NC Homes), which operates 11 retail centers in North Carolina and
one in Virginia. The results of the acquired operations of NC Homes 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 $3.6 million has been recorded as goodwill and is being
amortized over 25 years. The fair value of assets acquired and liabilities
assumed is summarized as follows:
<TABLE>
<S> <C>
Current assets ............. $ 7,994,000
Other assets ............... 282,000
Goodwill ................... 3,571,000
Floor plan payable.......... (6,691,000)
Accounts payable ........... (442,000)
Accrued liabilities ........ (214,000)
-----------
$ 4,500,000
===========
Consideration:
Cash ....................... $ 1,000,000
Note payable ............... 1,500,000
Common stock ............. 2,000,000
-----------
$ 4,500,000
===========
</TABLE>
On January 6, 1998, the Company completed the acquisition of Davis Homes,
Inc. which operates 5 retail centers in Alabama. The results of the acquired
operations of Davis Homes, Inc. 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 $2.1 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. The estimated fair value
of assets acquired and liabilities assumed is summarized as follows:
<TABLE>
<S> <C>
Current assets...................... $ 2,187,000
Other assets........................ 518,000
Goodwill............................ 2,075,000
Floor plan payable.................. (1,976,000)
Accrued liabilities................. (121,000)
------------
$ 2,683,000
============
Consideration:
Cash............................. $ 1,472,000
Note payable..................... 247,000
Common stock..................... 964,000
------------
$ 2,683,000
============
</TABLE>
7
<PAGE> 9
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 12 to 15
months). At February 28, 1998, the Company's contingent repurchase liability was
approximately $64.6 million.
INVENTORIES
A summary of inventories follows:
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1997 1998
------------------ ----------------
<S> <C> <C>
Manufactured homes:
New......................................................... $ 41,767,000 $ 51,286,000
Used........................................................ 4,715,000 5,409,000
Furniture and supplies........................................ 3,374,000 2,313,000
Raw materials and work-in-process............................. 8,353,000 8,597,000
--------------- ---------------
$ 58,209,000 $ 67,605,000
=============== ===============
</TABLE>
INVESTMENT IN AFFILIATE
Summary financial information for the Company's 50% owned subsidiary, 21st
Century Mortgage Corporation, for the three and nine months ended February 28,
1997 and 1998 follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
-------------------------------- --------------------------------
1997 1998 1997 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Total revenues.............. $ 973,000 $ 1,477,000 $ 2,070,000 $ 5,798,000
Net income.................. $ 92,000 $ 396,000 $ 225,000 $ 1,368,000
============= ============= ============= =============
</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 issuance of 711,149 shares of common stock exchanged for
all of the common stock of Brilliant and the stock splits effected on February
7, 1997 (5-for-4) and October 31, 1997 (3-for-2).
Effective December 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 Earnings per Share ("SFAS No. 128") which specifies
the standards for computing and presenting basic and diluted earnings per share
("EPS"). EPS amounts for prior periods have been retroactively adjusted to
conform with SFAS No. 128.
<TABLE>
<CAPTION>
Three Months Ended February 28,
-------------------------------
1997 1998
------------- --------------
<S> <C> <C>
Weighed average number of common shares
outstanding.......................... 16,873,990 17,231,582
Dilutive effect of stock option........ 676,763 893,734
----------- -----------
Weighted average number of common and
common equivalent shares outstanding. 17,550,753 18,125,316
=========== ===========
Net income............................. $ 3,421,000 $ 4,480,000
=========== ===========
Earnings per common share-basic........ $ 0.20 $ 0.26
=========== ===========
Earnings per common share-diluted...... $ 0.19 $ 0.25
=========== ===========
<CAPTION>
Nine Months Ended February 28,
-------------------------------
1997 1998
------------- --------------
<S> <C> <C>
Weighed average number of common shares
outstanding.......................... 16,892,612 17,171,427
Dilutive effect of stock option........ 652,463 861,849
----------- -----------
Weighted average number of common and
common equivalent shares outstanding. 17,545,075 18,033,276
=========== ===========
Net income............................. $10,444,000 $11,120,000
=========== ===========
Earnings per common share-basic........ $ 0.62 $ 0.65
=========== ===========
Earnings per common share-diluted...... $ 0.60 $ 0.62
=========== ===========
</TABLE>
LONG-TERM DEBT
The Company's loan agreement related to the 8.32% senior unsecured notes
contain certain requirements as to net working capital, consolidated net worth,
disposition of assets, additional long-term debt, redemption of common stock,
payment of dividends and prepayment of subordinated debt. At February 28, 1998,
the Company was in compliance with all such requirements.
8
<PAGE> 10
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 ("21st Century"), the Company's
mortgage affiliate, 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 Homes, Inc. ("Heartland") and Guerdon
Homes, Inc. ("Guerdon") in September 1996 and the acquisition of Brilliant Homes
in June 1997 will have the effect of adding significant revenues to the Company
with little, if any, immediate benefits of 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.
10
<PAGE> 11
RESULTS OF OPERATIONS
The following table summarizes certain key sales statistics for the three
and nine months ended February 28, 1997 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
------------------------- ------------------------
1997 1998 1997 1998
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Company-manufactured new homes sold at
retail (1) ................................. 757 1,005 2,303 3,053
Total new homes sold at retail ................. 1,012 1,161 3,277 3,643
Internalization rate (2) ....................... 75% 87% 70% 84%
Previously-owned homes sold at retail .......... 328 414 975 1,181
Average retail selling price--new homes ........ $45,794 $49,453 $45,509 $48,522
Average number of new homes sold per retail
sales center ................................ 21 15 70 51
Number of retail sales centers at end of period 48 80 48 80
Manufacturing shipments (1) .................... 2,306 2,419 6,382 7,664
Manufacturing shipments to independent
dealers (1) ................................. 1,474 1,407 3,796 4,523
</TABLE>
(1) Operating data for the three and nine months ended February 28, 1997 have
been restated to include the effects of the Brilliant acquisition.
(2) 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 operating results, expressed
as a percentage of revenues, for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
---------------------- ----------------------
1997 1998 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenues ........................... 100.0% 100.0% 100.0% 100.0%
Gross profit ............................. 28.1% 34.6% 28.7% 30.9%
Selling, general and administrative before
acquisition costs ..................... 20.9% 26.8% 21.4% 23.2%
Acquisition costs ........................ -- -- -- 0.7%
Operating income ......................... 7.2% 7.9% 7.3% 7.1%
Income before extraordinary item ......... 3.4% 3.8% 3.6% 3.2%
Net income ............................... 3.4% 3.8% 3.6% 3.0%
</TABLE>
Three months ended February 28, 1998 compared to three months ended February 28,
1997
Net Sales. Net sales of manufactured homes were $107.1 million for the
three months ended February 28, 1998, compared to $95.7 million for the three
months ended February 28, 1997. The increase was primarily the result of an 18%
increase in the number of new and previously-owned homes sold at retail as well
as an 8% increase in the average selling price of new homes. A decline in the
number of new homes sold per retail sales center from 21 in the third quarter of
fiscal 1997 to 15 in the third quarter of fiscal 1998 was primarily attributable
to two factors; (1) retail management changes necessitated by the restructuring
of the Company's retail operations and (2) average new homes sold from the
recently acquired operations of NC Homes being significantly lower than
11
<PAGE> 12
the average historically generated by the Company's retail locations in Texas
and the surrounding states. The Company added five new retail sales centers
during the third quarter of fiscal 1998.
Other Revenues. Transportation revenues for the three months ended February
28, 1998 were $2.1 million, a decrease of 21% from $2.7 million for the three
months ended February 28, 1997. This decrease was primarily due to increased
competition among mobile home transporters, particularly in Texas and
surrounding states. Transportation is not a key growth operation of the Company
and has over time represented a declining proportion of total revenues and net
income. Other revenues increased to $8.1 million for the three months ended
February 28, 1998, compared to $3.1 million for the three months ended February
28, 1997. Normal recurring revenues from insurance operations increased to $1.7
million for the three months ended February 28, 1998, compared to $1.5 million
for the three months ended February 28, 1997. Other revenues also included $4.7
million in earned physical damage insurance premiums which for the first time
were ceded to the Company's insurance subsidiary under a new reinsurance
contract. This arrangement will result in similar annual third quarter revenue
increases as each future insurance year closes.
Cost of Sales. Cost of manufactured homes sold were $74.9 million (69.9% of
net sales) for the three months ended February 28, 1998, as compared to $70.7
million (73.9% of net sales) for the three months ended February 28, 1997. 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 primarily the result
of an increase in the internalization rate from 75% for the three months ended
February 28, 1997 to 87% for the three months ended February 28, 1998 and
improved gross margins in the Company's manufacturing operations. Cost of sales
attributable to transportation operations for the three months ended February
28, 1998 were $1.8 million (82.2% of transportation revenues), a decrease of 23%
from $2.3 million (83.8% of transportation revenues) for the three months ended
February 28, 1997. The decrease is consistent with the decrease in
transportation activity from fiscal 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended February 28, 1998, were $31.4
million (26.8% of total revenues), as compared to $21.2 million (20.9% of total
revenues) for the three months ended February 28, 1997. The increase in selling,
general and administrative expenses is attributable to increased sales,
manufacturing and insurance activities as well as an increase in fixed costs and
expenses associated with new retail sales centers and expanded manufacturing
capacity. Selling, general and administration expenses also included $4.4
million in claims and expenses related to the $4.7 million earned premiums under
the new reinsurance contract (see other revenues). 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 75% for
the three months ended February 28, 1997 to 87% for the three months ended
February 28, 1998 as well as new retail sales centers which had not yet reached
normal operating efficiency. The increase was partially offset by a decrease in
warranty costs.
Interest Expense. Interest expense increased 8% to $1.9 million for the
three months ended February 28, 1998, from $1.7 million for the three months
ended February 28, 1997. This increase was primarily attributable to increased
borrowings associated with the Company's private placement of 8.32% senior
unsecured notes totaling $61 million in July 1997, and increased gross
borrowings under its floor plan credit facility to support a higher level of
inventory due to the addition of new retail sales centers.
Income Taxes. The income tax provision, expressed as a percentage of income
before income taxes, minority interest and earnings in affiliate, was 40.1% and
41.1% for the three months ended February 28, 1997 and 1998, respectively. The
increase in the effective tax rate was primarily the result of nondeductible
goodwill related to the acquisitions of Guerdon and NC Homes.
12
<PAGE> 13
Nine months ended February 28, 1998 compared to nine months ended February 28,
1997
Net Sales. Net sales of manufactured homes were $344.8 million for the nine
months ended February 28, 1998, compared to $274.3 million for the nine months
ended February 28, 1997. Sales from the Heartland and Guerdon manufacturing
operations were $97.9 million and $49.2 million for the nine months ended
February 28, 1998 and 1997, respectively. Excluding the Heartland and Guerdon
operations, net sales increased to $247.0 million for the nine months ended
February 28, 1998, compared to $225.1 million for the nine months ended February
28, 1997. The increase was primarily the result of a 14% increase in the number
of new and previously-owned homes sold at retail as well as a 7% increase in the
average selling price of new homes. A decline in the number of new homes sold
per retail sales center from 70 in the first nine months of fiscal 1997 to 51 in
the first nine months of fiscal 1998 was primarily attributable to two factors;
(1) retail management changes necessitated by the restructuring of the Company's
retail operations and (2) average new homes sold from the recently acquired
operations of NC Homes being significantly lower than the average historically
generated by the Company's retail locations in Texas and the surrounding states.
The Company added 26 new retail sales centers during the first nine months of
fiscal 1998, 12 of which were NC Homes retail sales centers.
Other Revenues. Transportation revenues for the nine months ended February
28, 1998 were $7.5 million, a decrease of 25% from $9.9 million for the nine
months ended February 28, 1997. This decrease was primarily due to increased
competition among mobile home transporters, particularly in Texas and
surrounding states. Transportation is not a key growth operation of the Company
and has over time represented a declining proportion of total revenues and net
income. Other revenues increased to $14.7 million for the nine months ended
February 28, 1998, compared to $9.0 million for the nine months ended February
28, 1997. Normal recurring revenues from insurance operations increased to $4.6
million for the nine months ended February 28, 1998, compared to $3.9 million
for the nine months ended February 28, 1997. Other revenues also included $4.7
million in earned physical damage insurance premiums which for the first time
were ceded to the Company's insurance subsidiary under a new reinsurance
contract. This arrangement will result in similar annual third quarter revenue
increases as each future insurance year closes.
Cost of Sales. Cost of manufactured homes sold were $247.4 million (71.7%
of net sales) for the nine months ended February 28, 1998, as compared to $200.9
million (73.2% of net sales) for the nine months ended February 28, 1997. Cost
of sales attributable to Heartland and Guerdon for the nine months ended
February 28, 1998 and 1997 were $78.0 million and $42.0 million, respectively.
Excluding the Heartland and Guerdon operations, cost of sales increased to
$169.4 million (68.6% of net sales) for the nine months ended February 28, 1998,
compared to $158.9 million (70.6% of net sales) for the nine months ended
February 28, 1997. 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 primarily the result of an increase in the internalization rate from 70% for
the nine months ended February 28, 1997 to 84% for the nine months ended
February 28, 1998. Cost of sales attributable to transportation operations for
the nine months ended February 28, 1998 were $6.2 million (82.3% of
transportation revenues), a decrease of 25% from $8.2 million (82.3% of
transportation revenues) for the nine months ended February 28, 1997. The
decrease is consistent with the decrease in transportation activity from fiscal
1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended February 28, 1998, were $85.1
million (23.2% of total revenues), as compared to $62.8 million (21.4% of total
revenues) for the nine months ended February 28, 1997. The increase in selling,
general and administrative expenses is attributable to increased sales,
manufacturing and insurance activities as well as an increase in fixed costs and
expenses associated with new retail sales centers and expanded manufacturing
capacity. Selling, general and administrative expenses also included $4.4
million in claims and expenses related to the $4.7 million in earned premiums
under the new reinsurance contract (see other revenues).
13
<PAGE> 14
Acquisition Costs. During the nine months ended February 28, 1998, the
Company incurred $2.4 million in costs related to the Brilliant acquisition.
These acquisition related costs primarily consisted of transaction costs and
severance and termination agreements with two former officers of Brilliant.
Interest Expense. Interest expense increased 38% to $5.5 million for the
nine months ended February 28, 1998, from $4.0 million for the nine months ended
February 28, 1997. This increase was primarily attributable to increased
borrowings associated with the Company's private placement of 8.32% senior
unsecured notes totaling $61 million in July 1997, and increased gross
borrowings under its floor plan credit facility to support a higher level of
inventory due to the addition of new retail sales centers.
Income Taxes. The income tax provision, expressed as a percentage of income
before income taxes, minority interest, earnings in affiliate and extraordinary
items, was 40.1% and 45.3% for the nine months ended February 28, 1997 and 1998,
respectively. The increase was primarily the result of nondeductible acquisition
costs related to the Brilliant acquisition as well as nondeductible goodwill
related to the acquisitions of Guerdon and NC Homes.
Extraordinary Loss. In connection with the private placement of $61 million
of 8.32% senior unsecured notes in July 1997, the Company repaid existing
secured bank debt of approximately $31 million. Consequently, the Company
recorded an extraordinary loss of $634,000 (net of income tax benefit) which
represented the write-off of unamortized debt issue costs as well as a
prepayment penalty associated with the repayment of the bank debt.
LIQUIDITY AND CAPITAL RESOURCES.
Cash provided by operations was $10.4 million for the nine months ended
February 28, 1998. Net income before depreciation and amortization accounted for
a significant portion of the cash provided by operating activities for the nine
months ended February 28, 1998. The increase of $5.4 million in accrued expenses
from May 31, 1997 to February 28, 1998 was primarily attributable to the accrual
of interest on the 8.32% senior unsecured notes and the accrual of sales
incentives and income taxes. The increase in accounts receivable accounted for
the majority of cash used in operations for the first nine months of fiscal
1998.
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 that the capital required to open a new retail sales center
is approximately $1.0 million to $1.25 million, primarily for inventory,
leasehold and land improvements and working capital. Management currently plans
to open 30 to 40 retail sales centers each year for the next two years. In
addition, management expects to expend approximately $15 million on capital
improvements to expand manufacturing capacity at six plants.
The Company had capital expenditures of $7.2 million for the nine months
ended February 28, 1998. These expenditures were used primarily to fund new
retail sales centers and expand manufacturing capacity. The Company paid
$1,987,000, net of cash acquired, to purchase NC Homes, Davis Homes and nine
additional retail sales centers.
At February 28, 1998, the Company had a $125 million floor plan credit
facility with Ford Consumer Finance Company, Inc. ("Ford"), with an interest
rate of prime less 0.50%. The facility is similar to a revolving credit facility
and is used to finance the purchase of inventory of new homes at its 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 $8.2 million
during the first nine months of fiscal 1998. At February 28, 1998, the Company
had net borrowings of $30.9 million (gross borrowings of $75.0 million less
participations of $44.1 million). The Company's participations in its floor plan
credit facility earn interest at Ford's prime rate less 0.75%, and are
immediately available to the Company in cash.
On July 15, 1997, the Company completed the private placement of $61
million of 8.32% senior unsecured notes (the "Senior Notes"). Scheduled payments
of the Senior Notes begin in July 2002 and continue annually until paid in full
in July 2007. The Company used the net proceeds to repay approximately $31
million in existing bank debt. The remainder of the proceeds were used to
14
<PAGE> 15
temporarily reduce borrowings under the Company's floor plan credit facility
with Ford.
Management believes that the proceeds from the Senior Notes, when coupled
with the Company's increased floor plan credit facility and cash provided from
operations, will be sufficient to satisfy internal working capital and capital
expenditure requirements over the next two years.
YEAR 2000
The Company recognizes that it must ensure that its products and its
operations will not be adversely impacted by Year 2000 software failures which
can arise in time-sensitive software applications which utilize two digits
rather than four to define the applicable year. The Company has considered the
impact of Year 2000 issues on its computer systems and applications. A
remediation plan has been developed and conversion activities are in process in
conjunction with the current information systems upgrade and are expected to be
completed and tested in 1999.
The Company does not have an overall estimate of the costs associated with
the purchase and implementation of the information system upgrade. The costs of
this software will be capitalized and amortized over the estimated useful life
of the software, and costs associated with the preliminary project stage and
post-implementation stage will be expensed as incurred. The Year 2000 component
of this system can not be readily segregated from the total cost of the Company
wide system implementation.
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.
15
<PAGE> 16
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 2, 1997. The
shareholders of the Company voted on and approved the following proposals:
1. The election of eight directors for terms expiring in 1998.
2. The approval of Non-Qualified Option Agreements with the Company's
Co-Chief Executive Officers.
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 (not adjusted to reflect
the 3-for-2 stock split effected on October 31, 1997):
1. Election of Directors:
<TABLE>
<CAPTION>
NAME FOR WITHHELD
------------------ -------------- -------------
<S> <C> <C>
Finis F. Teeter..................... 10,154,799 37,975
Laurence A. Dawson, Jr.............. 10,155,612 37,319
Craig A. Reynolds................... 10,154,799 38,132
Jackie H. Holland................... 10,154,699 38,232
Charles N. Carney, Jr............... 10,153,893 39,038
James J. Fallon..................... 10,154,799 38,132
William O. Hunt..................... 10,154,888 38,043
Jack McDonald....................... 10,154,888 38,043
</TABLE>
2. Approval of Non-Qualified Option Agreements:
FOR AGAINST ABSTAIN
--------------- -------------- -------------
9,636,668 258,029 271,054
3. The ratification of the selection of KPMG Peat Marwick LLP as the
Company's independent certified public accountants:
FOR AGAINST ABSTAIN
--------------- -------------- -------------
10,156,027 6,237 30,487
16
<PAGE> 17
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 American Homestar Corporation. 3.1 S-1 Registration Statement
No. 33-78630
Amended and Restated Bylaws of American Homestar Corporation. 3.2 S-1 Registration Statement
No. 33-78630
Specimen Common Stock Certificate. 4.1 S-1 Registration Statement
No. 33-78630
None 11
None 15
None 18
None 19
None 22
None 24
Financial Data Schedules 27 Filed herewith
None 99
</TABLE>
(b) REPORTS ON FORM 8-K - The Company did not file any reports on Form 8-K
during the quarter for which this report is filed.
17
<PAGE> 18
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: April 13, 1998 By: /s/ Craig A. Reynolds
-----------------------------------
Craig A. Reynolds
Executive Vice President,
Chief Financial
Officer, Secretary and Director
(Principal Financial and
Accounting Officer)
18
<PAGE> 19
EXHIBIT INDEX
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Report With Which
No. Description Exhibit was Filed
---------- ------------ ------------------------------
<S> <C> <C>
3.1 Restated Articles of Incorporation of American Homestar Corporation. S-1 Registration Statement
No. 33-78630
3.2 Amended and Restated Bylaws of American Homestar Corporation. S-1 Registration Statement
No. 33-78630
4.1 Specimen Common Stock Certificate. S-1 Registration Statement
No. 33-78630
11 None
15 None
18 None
19 None
22 None
24 None
27 Financial Data Schedules Filed herewith
99 None
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000922812
<NAME> AMERICAN HOMESTAR CORPORATION
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 48,532,000
<SECURITIES> 0
<RECEIVABLES> 22,211,000
<ALLOWANCES> 0
<INVENTORY> 67,605,000
<CURRENT-ASSETS> 150,881,000
<PP&E> 63,721,000
<DEPRECIATION> 11,127,000
<TOTAL-ASSETS> 246,127,000
<CURRENT-LIABILITIES> 89,739,000
<BONDS> 0
0
0
<COMMON> 863,000
<OTHER-SE> 91,013,000
<TOTAL-LIABILITY-AND-EQUITY> 91,876,000
<SALES> 344,847,000
<TOTAL-REVENUES> 367,066,000
<CGS> 253,581,000
<TOTAL-COSTS> 341,074,000
<OTHER-EXPENSES> 29,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,501,000
<INCOME-PRETAX> 20,464,000
<INCOME-TAX> 9,267,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 634,000
<CHANGES> 0
<NET-INCOME> 11,120,000
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.62
</TABLE>
