<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, 1997
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 January 2, 1998.
Common Stock, Par Value $.05 Per Share 17,190,169
<PAGE> 2
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - May 31, 1997 and November 30, 1997....................... 2
Consolidated Statements of Operations - three months ended
November 30, 1996 and 1997.......................................................... 3
Consolidated Statements of Operations - six months ended November 30,
1996 and 1997....................................................................... 4
Consolidated Statements of Cash Flows - six months ended November 30,
1996 and 1997....................................................................... 5
Notes to Consolidated Financial Statements............................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................... 9
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.................................... 14
Item 6. Exhibits and Reports on Form 8-K....................................................... 15
</TABLE>
1
<PAGE> 3
PART I -- FINANCIAL INFORMATION
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MAY 31, NOVEMBER 30,
1997 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash ........................................................................ $ 17,209,000 $ 16,880,000
Cash in transit from financial institutions ................................. 26,139,000 23,386,000
------------ ------------
Total cash and cash equivalents ....................................... 43,348,000 40,266,000
Inventories ................................................................. 58,209,000 64,658,000
Accounts receivable ......................................................... 13,807,000 20,203,000
Deferred tax asset .......................................................... 4,604,000 4,192,000
Prepaid expenses and other current assets ................................... 7,267,000 6,514,000
------------ ------------
Total current assets .................................................. 127,235,000 135,833,000
Property, plant and equipment, net ............................................. 47,581,000 49,541,000
Goodwill ....................................................................... 30,280,000 34,307,000
Investment in affiliate ........................................................ 3,675,000 3,192,000
Other assets ................................................................... 2,250,000 4,064,000
------------ ------------
$211,021,000 $226,937,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Floor plan payable .......................................................... $ 46,282,000 $ 22,036,000
Accounts payable ............................................................ 21,474,000 21,100,000
Accrued expenses ............................................................ 22,703,000 25,238,000
Accrued warranty costs ...................................................... 6,356,000 6,340,000
Notes payable ............................................................... 6,160,000 980,000
------------ ------------
Total current liabilities ............................................. 102,975,000 75,694,000
Notes payable and capital lease, less current installments ..................... 29,136,000 63,616,000
Deferred tax liability ......................................................... 235,000 271,000
Minority interest in consolidated subsidiary ................................... 966,000 1,053,000
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 17,190,169 shares at
May 31, 1997 and November 30, 1997, respectively .......................... 848,000 860,000
Additional paid-in capital .................................................. 39,735,000 42,356,000
Retained earnings ........................................................... 37,126,000 43,087,000
------------ ------------
Total shareholders' equity ............................................ 77,709,000 86,303,000
------------ ------------
$211,021,000 $226,937,000
============ ============
</TABLE>
2
<PAGE> 4
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30,
-----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Revenues:
Net sales ................................................................... $102,828,000 $119,384,000
Other revenues .............................................................. 6,402,000 5,630,000
------------ ------------
Total revenues ........................................................ 109,230,000 125,014,000
------------ ------------
Costs and expenses:
Cost of sales ............................................................... 79,072,000 87,666,000
Selling, general and administrative ......................................... 22,272,000 27,638,000
------------ ------------
Total costs and expenses .............................................. 101,344,000 115,304,000
------------ ------------
Operating income ...................................................... 7,886,000 9,710,000
Interest expense ............................................................... (1,397,000) (1,738,000)
Other .......................................................................... 76,000 (8,000)
------------ ------------
Income before items shown below ....................................... 6,565,000 7,964,000
Income tax expense ............................................................. 2,668,000 3,350,000
------------ ------------
Income before items shown below ....................................... 3,897,000 4,614,000
Earnings in affiliate .......................................................... 44,000 246,000
Minority interest in income of consolidated subsidiary ......................... (72,000) (41,000)
------------ ------------
Net income ............................................................ $ 3,869,000 $ 4,819,000
============ ============
Earnings Per Share - Primary and Fully Diluted ................................. $ 0.22 $ 0.27
============ ============
</TABLE>
3
<PAGE> 5
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED NOVEMBER 30,
-----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Revenues:
Net sales ................................................................... $178,609,000 $237,744,000
Other revenues .............................................................. 13,116,000 12,002,000
------------ ------------
Total revenues ........................................................ 191,725,000 249,746,000
------------ ------------
Costs and expenses:
Cost of sales ............................................................... 136,159,000 176,907,000
Selling, general and administrative ......................................... 41,599,000 53,650,000
Acquisition costs ........................................................... -- 2,425,000
------------ ------------
Total costs and expenses .............................................. 177,758,000 232,982,000
------------ ------------
Operating income ...................................................... 13,967,000 16,764,000
Interest expense ............................................................... (2,260,000) (3,632,000)
Other .......................................................................... 180,000 (7,000)
------------ ------------
Income before items shown below ....................................... 11,887,000 13,125,000
Income tax expense ............................................................. 4,758,000 6,250,000
------------ ------------
Income before items shown below ....................................... 7,129,000 6,875,000
Earnings in affiliate .......................................................... 66,000 486,000
Minority interest in income of consolidated subsidiary ......................... (172,000) (88,000)
------------ ------------
Net income before extraordinary item .................................. 7,023,000 7,273,000
Extraordinary loss from early extinguishment of debt (net of
income tax benefit of $423,000) ............................................. -- (634,000)
------------ ------------
Net income ............................................................ $ 7,023,000 $ 6,639,000
============ ============
Earnings Per Share - Primary and Fully Diluted:
Net income before extraordinary loss ...................................... $ 0.40 $ 0.41
Extraordinary loss, net of income tax benefit ............................. -- (0.04)
------------ ------------
Net income ............................................................ $ 0.40 $ 0.37
============ ============
</TABLE>
4
<PAGE> 6
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED NOVEMBER 30,
-----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................................. $ 7,023,000 $ 6,639,000
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Net loss of Brilliant ..................................................... -- (678,000)
Depreciation and amortization ............................................. 1,623,000 2,617,000
Earnings in affiliate ..................................................... (66,000) (486,000)
Minority interest in income of consolidated subsidiary .................... 172,000 88,000
Compensation expense on sale of common stock .............................. 23,000 --
Deferred taxes ............................................................ (145,000) 448,000
Change in assets and liabilities, net of acquisitions:
Increase in accounts receivable ......................................... (3,453,000) (6,104,000)
Increase in inventories ................................................. (9,687,000) (210,000)
Decrease in prepaid expenses and other current assets ................... 1,514,000 764,000
Increase in other assets ................................................ (1,571,000) (787,000)
Increase (decrease) in accounts payable ................................. 2,030,000 (816,000)
Increase (decrease) in accrued expenses ................................. (968,000) 2,304,000
Increase in other liabilities ........................................... 1,312,000 --
------------ ------------
Net cash provided by (used in) operating activities .............. (2,193,000) 3,779,000
------------ ------------
Cash flows from investing activities:
Purchases of property, plant and equipment .................................. (10,196,000) (3,595,000)
Payment for purchase of acquisitions, net of cash acquired .................. (2,955,000) (683,000)
------------ ------------
Net cash used in investing activities ............................ (13,151,000) (4,278,000)
------------ ------------
Cash flows from financing activities:
Borrowings under floor plan payable ......................................... 77,497,000 78,910,000
Repayment of floor plan payable ............................................. (67,735,000) (82,290,000)
Participations in floor plan payable ........................................ 9,448,000 (27,561,000)
Principal payments on long-term debt ........................................ (19,343,000) (33,275,000)
Borrowings under long-term debt ............................................. 17,793,000 61,000,000
Exercise of stock options ................................................... 87,000 633,000
Other ....................................................................... (64,000) --
------------ ------------
Net cash provided by (used in) financing activities .............. 17,683,000 (2,583,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents ........................... 2,339,000 (3,082,000)
Cash and cash equivalents, beginning of period ................................. 33,149,000 43,348,000
------------ ------------
Cash and cash equivalents, end of period ....................................... $ 35,488,000 $ 40,266,000
============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest ...................................................... $ 2,625,000 $ 3,624,000
Cash paid for income taxes .................................................. 3,869,000 5,100,000
============ ============
</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 six months ended November 30, 1997 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 to purchase Brilliant's common stock. 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 six months ended November 30, 1997 combine each
company's three and six months ended November 30, 1997. The restated financial
statements for the three and six months ended November 30, 1996 combine the
Company's financial statements for the three and six months ended November 30,
1996 with Brilliant's financial statements for the three and six months ended
June 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 six months ended November 30, 1996 follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, 1996 NOVEMBER 30, 1996
--------------- ---------------
<S> <C> <C>
Revenues:
American Homestar ......... $ 89,306,000 $ 156,012,000
Brilliant ................. 19,924,000 35,713,000
=============== ===============
Combined ............... $ 109,230,000 $ 191,725,000
=============== ===============
Net income:
American Homestar ......... $ 3,585,000 $ 6,603,000
Brilliant ................. 284,000 420,000
=============== ===============
Combined ............... $ 3,869,000 $ 7,023,000
=============== ===============
</TABLE>
Adjustments to conform Brilliant's method of accounting for inventory and
accrued warranty costs with that of the Company reduced pro forma net income for
the three and six months ended November 30, 1996 by $126,000 and $219,000,
respectively.
6
<PAGE> 8
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 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 ............... $ 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>
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 November 30, 1997, the Company's contingent repurchase liability was
approximately $61.5 million.
INVENTORIES
A summary of inventories follows:
<TABLE>
<CAPTION>
MAY 31, NOVEMBER 30,
1997 1997
------------ ------------
<S> <C> <C>
Manufactured homes:
New .......................................................................... $ 41,767,000 $ 47,861,000
Used ......................................................................... 4,715,000 6,012,000
Furniture and supplies ......................................................... 3,374,000 2,056,000
Raw materials and work-in-process .............................................. 8,353,000 8,729,000
------------ ------------
$ 58,209,000 $ 64,658,000
============ ============
</TABLE>
7
<PAGE> 9
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
INVESTMENT IN AFFILIATE
Summary financial information for the Company's 50% owned subsidiary, 21st
Century Mortgage Corporation, for the three and six months ended November 30,
1996 and 1997 follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
----------------------------- -----------------------------
1996 1997 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total revenues .......... $ 671,000 $ 2,318,000 $ 1,097,000 $ 4,321,000
Net income .............. $ 90,000 $ 492,000 $ 134,000 $ 972,000
============ ============ ============ ============
</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).
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 November 30, 1997,
the Company was in compliance with all such restrictions.
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.
9
<PAGE> 11
RESULTS OF OPERATIONS
The following table summarizes certain key sales statistics for the three
and six months ended November 30, 1996 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
---------------------- ----------------------
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Company-manufactured new homes sold at
retail (1) ................................... 777 1,000 1,546 2,048
Total new homes sold at retail ................... 1,112 1,182 2,265 2,482
Internalization rate (2) ......................... 70% 85% 68% 83%
Previously-owned homes sold at retail ............ 327 370 647 767
Average retail selling price--new homes .......... $ 46,618 $ 49,664 $ 45,382 $ 48,046
Average number of new homes sold per retail
sales center .................................. 24 16 49 36
Number of retail sales centers at end of period .. 48 75 48 75
Manufacturing shipments (1) ...................... 2,472 2,629 4,076 5,245
Manufacturing shipments to independent
dealers (1) ................................... 1,546 1,555 2,322 3,086
</TABLE>
(1) Operating data for the three and six months ended November 30, 1996 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 SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
---------------------- ----------------------
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenues ................................... 100.0% 100.0% 100.0% 100.0%
Gross profit ..................................... 27.6% 29.9% 29.0% 29.2%
Selling, general and administrative before
acquisition costs ............................. 20.4% 22.1% 21.7% 21.5%
Acquisition costs ................................ -- -- -- 1.0%
Operating income ................................. 7.2% 7.8% 7.3% 6.7%
Net income before extraordinary loss ............. 3.6% 3.9% 3.7% 2.9%
Net income ....................................... 3.6% 3.9% 3.7% 2.7%
</TABLE>
Three months ended November 30, 1997 compared to three months ended November 30,
1996
Net Sales. Net sales of manufactured homes were $119.4 million for the
three months ended November 30, 1997, compared to $102.8 million for the three
months ended November 30, 1996. The increase was primarily the result of a 8%
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 24 in the second quarter
of fiscal 1997 to 16 in the second 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
10
<PAGE> 12
lower than the average historically generated by the Company's retail locations
in Texas and the surrounding states. The Company added six new retail sales
centers during the second quarter of fiscal 1998.
Other Revenues. Transportation revenues for the three months ended November
30, 1997 were $2.5 million, a decrease of 26% from $3.4 million for the three
months ended November 30, 1996. 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 $3.2 million for the three months ended
November 30, 1997, compared to $3.1 million for the three months ended November
30, 1996. This increase in other revenues is primarily due to increased
commissions and premiums generated by the Company's insurance operations.
Cost of Sales. Cost of manufactured homes sold were $85.6 million (71.7% of
net sales) for the three months ended November 30, 1997, as compared to $76.3
million (74.2% of net sales) for the three months ended November 30, 1996. 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 three months ended
November 30, 1996 to 85% for the three months ended November 30, 1997 and
improved gross margins in the Company's manufacturing and retail operations.
Cost of sales attributable to transportation operations for the three months
ended November 30, 1997 were $2.0 million (82.4% of transportation revenues), a
decrease of 26% from $2.8 million (82.3% of transportation revenues) for the
three months ended November 30, 1996. 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 November 30, 1997, were $27.6
million (22.1% of total revenues), as compared to $22.3 million (20.4% of total
revenues) for the three months ended November 30, 1996. 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. 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 70% for the three months ended November 30, 1996
to 85% for the three months ended November 30, 1997 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 24% to $1.7 million for the
three months ended November 30, 1997, from $1.4 million for the three months
ended November 30, 1996. 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 40.6% and 42.1% for the three months ended November 30, 1996 and
1997, respectively. The increase was primarily the result of nondeductible
goodwill related to the acquisitions of Guerdon and NC Homes.
Six months ended November 30, 1997 compared to six months ended November 30,
1996
Net Sales. Net sales of manufactured homes were $237.7 million for the six
months ended November 30, 1997, compared to $178.6 million for the six months
ended November 30, 1996. Sales from the Heartland and Guerdon manufacturing
operations were $23.8 million and $56.2 million for the six months ended
November 30, 1996 and 1997, respectively. Excluding the Heartland and Guerdon
operations, net sales increased to $181.5 million for the six months ended
November 30, 1997, compared to $154.8 million for the six months
11
<PAGE> 13
ended November 30, 1996. The increase was primarily the result of a 12% increase
in the number of new and previously-owned homes sold at retail as well as a 6%
increase in the average selling price of new homes. A decline in the number of
new homes sold per retail sales center from 49 in the second quarter of fiscal
1997 to 36 in the second 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 the average
historically generated by the Company's retail locations in Texas and the
surrounding states. The Company added 21 new retail sales centers during the
first six months of fiscal 1998, 12 of which were NC Homes retail sales centers.
Other Revenues. Transportation revenues for the six months ended November
30, 1997 were $5.3 million, a decrease of 26% from $7.2 million for the six
months ended November 30, 1996. 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 $6.7 million for the six months ended
November 30, 1997, compared to $5.9 million for the six months ended November
30, 1996. This increase in other revenues is primarily due to increased
commissions and premiums generated by the Company's insurance operations.
Cost of Sales. Cost of manufactured homes sold were $172.5 million (72.6%
of net sales) for the six months ended November 30, 1997, as compared to $130.2
million (72.9% of net sales) for the six months ended November 30, 1996. Cost of
sales attributable to Heartland and Guerdon for the six months ended November
30. 1996 and 1997 were $20.6 million and $44.5 million, respectively. Excluding
the Heartland and Guerdon operations, cost of sales increased to $128.0 million
(70.5% of net sales) for the six months ended November 30, 1997, compared to
$109.6 million (70.8% of net sales) for the six months ended November 30, 1996.
The increase in cost of sales was primarily due to higher sales volume. The
slight decrease in cost of sales, expressed as a percentage of sales, was
primarily the result of an increase in the internalization rate from 68% for the
six months ended November 30, 1996 to 83% for the six months ended November 30,
1997. Cost of sales attributable to transportation operations for the six months
ended November 30, 1997 were $4.4 million (82.3% of transportation revenues), a
decrease of 26% from $5.9 million (82.6% of transportation revenues) for the six
months ended November 30, 1996. 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 six months ended November 30, 1997, were $53.7
million (21.5% of total revenues), as compared to $41.6 million (21.7% of total
revenues) for the six months ended November 30, 1996. 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, expressed as a
percentage of total revenues, for the six months ended November 30, 1997 was
consistent with the prior period.
Acquisition Costs. During the six months ended November 30, 1997, 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 61% to $3.6 million for the
six months ended November 30, 1997, from $2.3 million for the six months ended
November 30, 1996. 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 40.0% and 47.6% for the six months ended
12
<PAGE> 14
November 30, 1996 and 1997, 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 $3.8 million for the six months ended
November 30, 1997. Net income before depreciation and amortization accounted for
a significant portion of the cash provided by operating activities for the three
months ended November 30, 1997. The increase of $2.3 million in accrued expenses
from May 31, 1997 to November 30, 1997 was primarily attributable to the accrual
of interest on the 8.32% senior unsecured notes, the payment of which is due
semiannually in January and July. The increase in accounts receivable accounted
for the majority of cash used in operations for the first six months of fiscal
1998. The May 31, 1997 balance sheet combines the Company's May 31, 1997 balance
sheet with Brilliant's December 31, 1996 balance sheet. As is customary in the
manufactured home industry, the Brilliant plants were shut down for one week in
late December, which resulted in a reduction in sales as well as accounts
receivable in December 1996.
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 20 to 30 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 $3.6 million for the six months
ended November 30, 1997. These expenditures were used primarily to fund new
retail sales centers and expand manufacturing capacity. The Company paid
$683,000, net of cash acquired, to purchase NC Homes and nine additional retail
sales centers.
At November 30, 1997, 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 $3.3 million
during the first six months of fiscal 1998. At November 30, 1997, the Company
had net borrowings of $22.0 million (gross borrowings of $70.0 million less
participations of $48.0 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
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 working capital and capital
expenditure requirements over the next two years.
13
<PAGE> 15
YEAR 2000
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 is expected to be completed and tested in 1998.
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
14
<PAGE> 16
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
Statement Re Computation of Per Share Earnings 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.
15
<PAGE> 17
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, 1998 By: /s/ Craig A. Reynolds
---------------------
Craig A. Reynolds
Executive Vice President, Chief
Financial Officer, Secretary and
Director (Principal Financial and
Accounting Officer)
16
<PAGE> 18
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
Statement Re Computation of Per Share Earnings 11
None 15
None 18
None 19
None 22
None 24
Financial Data Schedules 27 Filed herewith
None 99
</TABLE>
<PAGE> 1
EXHIBIT 11
AMERICAN HOMESTAR CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30,
-----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Weighted average number of common shares outstanding ...................... 16,887,515 17,178,364
Dilutive effect of stock options .......................................... 650,285 864,728
============ ============
Weighted average number of common and common equivalent shares
outstanding .......................................................... 17,537,800 18,043,092
============ ============
Net income ................................................................ $ 3,869,000 $ 4,819,000
============ ============
Earnings per common share-primary ......................................... $ 0.22 $ 0.27
============ ============
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30,
-----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Weighted average number of common shares outstanding ...................... 16,887,515 17,178,364
Dilutive effect of stock options .......................................... 650,285 864,728
============ ============
Weighted average number of common and common equivalent shares
outstanding .......................................................... 17,537,800 18,043,092
============ ============
Net income ................................................................ $ 3,869,000 $ 4,819,000
============ ============
Earnings per common share-fully diluted ................................... $ 0.22 $ 0.27
============ ============
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED NOVEMBER 30,
-----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Weighted average number of common shares outstanding ...................... 16,879,339 17,142,452
Dilutive effect of stock options .......................................... 656,414 852,818
------------ ------------
Weighted average number of common and common equivalent shares
outstanding .......................................................... 17,535,753 17,995,270
============ ============
Net income ................................................................ $ 7,023,000 $ 6,639,000
============ ============
Earnings per common share-primary ......................................... $ 0.40 $ 0.37
============ ============
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED NOVEMBER 30,
-----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Weighted average number of common shares outstanding ...................... 16,879,339 17,142,452
Dilutive effect of stock options .......................................... 656,414 852,818
------------ ------------
Weighted average number of common and common equivalent shares
outstanding .......................................................... 17,535,753 17,995,270
============ ============
Net income ................................................................ $ 7,023,000 $ 6,639,000
============ ============
Earnings per common share-fully diluted ................................... $ 0.40 $ 0.37
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 40,266,000
<SECURITIES> 0
<RECEIVABLES> 20,203,000
<ALLOWANCES> 0
<INVENTORY> 64,658,000
<CURRENT-ASSETS> 135,833,000
<PP&E> 59,256,000
<DEPRECIATION> (9,715,000)
<TOTAL-ASSETS> 226,937,000
<CURRENT-LIABILITIES> 75,694,000
<BONDS> 0
0
0
<COMMON> 860,000
<OTHER-SE> 85,443,000
<TOTAL-LIABILITY-AND-EQUITY> 226,937,000
<SALES> 237,744,000
<TOTAL-REVENUES> 249,746,000
<CGS> 176,907,000
<TOTAL-COSTS> 232,982,000
<OTHER-EXPENSES> 7,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,632,000
<INCOME-PRETAX> 13,125,000
<INCOME-TAX> 6,250,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 634,000
<CHANGES> 0
<NET-INCOME> 6,639,000
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
