<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 December 31, 1999
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 February 1, 2000.
Common Stock, Par Value $.05 Per Share 18,423,707
<PAGE> 2
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - May 31, 1999 and December 31, 1999....................... 2
Consolidated Statements of Operations - three months ended
November 30, 1998 and December 31, 1999 ............................................ 3
Consolidated Statements of Operations - six months ended
November 30, 1998 and December 31, 1999 ............................................ 4
Consolidated Statements of Cash Flows - six months ended
November 30, 1998 and December 31, 1999............................................. 5
Notes to Consolidated Financial Statements............................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................. 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................................... 17
</TABLE>
<PAGE> 3
PART I -- FINANCIAL INFORMATION
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, DECEMBER 31,
1999 1999
------------- -------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash .............................................................. $ 6,865,000 $ 10,338,000
Cash in transit from financial institutions ....................... 44,414,000 23,689,000
------------- -------------
Total cash and cash equivalents ............................. 51,279,000 34,027,000
Inventories, net .................................................. 118,681,000 104,404,000
Accounts receivable ............................................... 48,965,000 30,675,000
Manufacturer incentives receivable ................................ 543,000 326,000
Deferred tax assets ............................................... 4,488,000 4,834,000
Prepaid expenses and other current assets ......................... 12,925,000 11,003,000
------------- -------------
Total current assets ........................................ 236,881,000 185,269,000
Property, plant and equipment, net ................................... 94,826,000 93,786,000
Goodwill (net of accumulated amortization of $11,403,000 and
$12,902,000, respectively) ........................................... 87,324,000 93,332,000
Investment in affiliates ............................................. 8,610,000 8,721,000
Other assets ......................................................... 11,675,000 10,389,000
------------- -------------
$ 439,316,000 $ 391,497,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of notes payable and capital lease ........... $ 3,086,000 $ 3,058,000
Floor plan payable, net of participations ......................... 86,671,000 73,430,000
Accounts payable .................................................. 36,391,000 21,549,000
Accrued expenses .................................................. 41,406,000 27,431,000
Accrued warranty costs ............................................ 8,368,000 7,658,000
------------- -------------
Total current liabilities ................................... 175,922,000 133,126,000
Notes payable and capital lease, less current installments ........... 126,728,000 127,168,000
Deferred tax liabilities ............................................. 362,000 --
Minority interest in consolidated subsidiary ......................... 839,000 979,000
Shareholders' equity:
Preferred stock, no par value, authorized 5,000,000 shares;
375,000 shares issued and outstanding .......................... -- 4,500,000
Common stock, $0.05 par value; authorized 50,000,000 shares;
issued and outstanding 18,412,900 and 18,423,707 shares at
May 31, 1999 and December 31, 1999, respectively .............. 921,000 921,000
Additional paid-in capital ........................................ 62,472,000 62,519,000
Retained earnings ................................................. 72,072,000 62,284,000
------------- -------------
Total shareholders' equity .................................. 135,465,000 130,224,000
------------- -------------
$ 439,316,000 $ 391,497,000
============= =============
</TABLE>
2
<PAGE> 4
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
NOVEMBER 30, DECEMBER 31,
1998 1999
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Net sales .......................................... $ 159,376,000 $ 128,018,000
Other revenues ..................................... 9,646,000 10,771,000
------------- -------------
Total revenues ............................... 169,022,000 138,789,000
------------- -------------
Costs and expenses:
Cost of sales ...................................... 122,050,000 108,871,000
Selling, general and administrative ................ 34,599,000 35,461,000
------------- -------------
Total costs and expenses ..................... 156,649,000 144,332,000
------------- -------------
Operating income (loss) ...................... 12,373,000 (5,543,000)
Interest expense ...................................... (3,032,000) (4,338,000)
Other income (expense) ................................ 85,000 (26,000)
------------- -------------
Income (loss) before items shown below ....... 9,426,000 (9,907,000)
Income tax expense (benefit) .......................... 3,876,000 (2,548,000)
------------- -------------
Income (loss) before items shown below ....... 5,550,000 (7,359,000)
Earnings (loss) from affiliates ....................... 273,000 (18,000)
Minority interests .................................... (66,000) (64,000)
------------- -------------
Net income (loss) ............................ $ 5,757,000 $ (7,441,000)
============= =============
Earnings (loss) per share - basic:
Net income per share ......................... $ 0.32 $ (0.40)
============= =============
Earnings (loss) per share - diluted:
Net income per share ......................... $ 0.31 $ (0.40)
============= =============
</TABLE>
3
<PAGE> 5
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
NOVEMBER 30, DECEMBER 31,
1998 1999
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Net sales ........................................ $ 297,256,000 $ 283,359,000
Other revenues ................................... 19,297,000 21,209,000
------------- -------------
Total revenues ............................. 316,553,000 304,568,000
------------- -------------
Costs and expenses:
Cost of sales .................................... 230,247,000 234,765,000
Selling, general and administrative .............. 62,437,000 71,677,000
Restructuring charge ............................. -- 2,323,000
------------- -------------
Total costs and expenses ................... 292,720,000 308,765,000
------------- -------------
Operating income (loss) .................... 23,833,000 (4,197,000)
Interest expense .................................... (5,476,000) (8,370,000)
Other income (expense) .............................. 85,000 (209,000)
------------- -------------
Income (loss) before items shown below ..... 18,442,000 (12,776,000)
Income tax expense (benefit) ........................ 7,579,000 (3,782,000)
------------- -------------
Income (loss) before items shown below ..... 10,863,000 (8,994,000)
Earnings from affiliates ............................ 809,000 238,000
Minority interests .................................. (131,000) (120,000)
------------- -------------
Net income (loss) .......................... $ 11,541,000 $ (8,876,000)
============= =============
Earnings (loss) per share - basic:
Net income per share ....................... $ 0.66 $ (0.48)
============= =============
Earnings (loss) per share - diluted:
Net income per share ....................... $ 0.62 $ (0.48)
============= =============
</TABLE>
4
<PAGE> 6
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
NOVEMBER 30, DECEMBER 31,
1998 1999
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ...................................................... $ 11,541,000 $ (8,876,000)
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization ........................................ 3,564,000 7,893,000
Minority interests in income of consolidated subsidiaries ............ 131,000 120,000
Earnings in affiliates ............................................... (809,000) (238,000)
Restructuring charge ................................................. -- 2,231,000
Deferred taxes ....................................................... 83,000 (681,000)
Change in assets and liabilities, net of acquisitions
(Increase) decrease in receivables ................................. (6,071,000) 22,192,000
(Increase) decrease in inventories ................................. (20,358,000) 18,627,000
(Increase) decrease in prepaid expenses and other current assets ... (3,652,000) 857,000
Decrease (increase) in other assets ................................ 771,000 1,590,000
Increase (decrease) in accounts payable ............................ 2,171,000 (6,267,000)
Increase (decrease) in accrued expenses ............................ 3,926,000 (21,077,000)
------------- -------------
Net cash (used in) provided by operating activities ......... (8,703,000) 16,371,000
------------- -------------
Cash flows from investing activities:
Payment for purchase of acquisitions, net of cash acquired ............. (12,672,000) --
Purchases of property, plant and equipment ............................. (13,247,000) (6,206,000)
------------- -------------
Net cash used in investing activities ....................... (25,919,000) (6,206,000)
------------- -------------
Cash flows from financing activities:
Participation in floor plan payable .................................... (18,403,000) 1,936,000
Borrowings under floor plan payable .................................... 117,310,000 75,291,000
Repayments of floor plan payable ....................................... (96,154,000) (99,735,000)
Proceeds from long-term debt borrowings ................................ 51,000,000 --
Principal payments of long-term debt ................................... (1,150,000) (2,542,000)
Exercise of stock options .............................................. 538,000 35,000
------------- -------------
Net cash provided by (used in) financing activities ......... 53,141,000 (25,015,000)
------------- -------------
Net increase (decrease) in cash and cash equivalents ...................... 18,519,000 (14,850,000)
Cash and cash equivalents, beginning of period ............................ 56,141,000 48,877,000
------------- -------------
Cash and cash equivalents, end of period .................................. $ 74,660,000 $ 34,027,000
============= =============
Supplemental disclosures of cash flow information:
Cash paid for interest ................................................. $ 4,864,000 $ 8,347,000
Cash paid for income taxes ............................................. 5,904,000 702,000
============= =============
</TABLE>
5
<PAGE> 7
AMERICAN HOMESTAR CORPORATION SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
American Homestar Corporation and subsidiaries (the "Company") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Because of the seasonal nature of the Company's business, operating
results for the three and six months ended December 31, 1999, respectively, are
not necessarily indicative of the results that may be expected for the fiscal
year ending June 30, 2000. 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.
In May 1999, the Board of Directors voted to change the Company's fiscal
year end from May 31 to June 30 to be effective for the year beginning July 1,
1999. Such change was subject to IRS approval which was received on August 31,
1999. Accordingly, the Company included the financial information for the one
month ended June 30, 1999 (the transition period) in the quarterly report on
Form 10-Q for the quarterly period ended September 30, 1999. This new fiscal
year will allow the Company to conform its quarterly reporting periods to those
predominantly used in its industry.
RECLASSIFICATIONS
Certain prior years' amounts have been reclassified to conform to
classifications used in the current period.
NON-CASH TRANSACTIONS
In connection with the Company's December 29, 1998 acquisition of R-Anell Custom
Homes, Inc. and its related manufacturing companies, Gold Medal Homes, Inc. and
Gold Medal Homes of North Carolina, Inc. (collectively "R-Anell"), and pursuant
to certain earn out provisions of the stock purchase agreement, a third
amendment to the stock purchase agreement dated September 30, 1999 was entered
into by the Company and R-Anell. The purchase price was increased by $7.5
million and paid as follows; $4.5 million (375,000 shares) of Series A
Convertible Preferred Stock (the "Series A Stock") of American Homestar
Corporation, a $1.5 million note payable and a $1.5 million payable which was
paid in cash October 15, 1999. Each share of Series A Stock is nonvoting,
cumulative and, in connection with a qualifying transfer, convertible into one
share of Common Stock from April 1, 2001 to October 1, 2001. After October 1,
2001, each share of Series A Stock is convertible into shares of Common Stock
equal to the greater of: (1) one share of Common Stock; or (2) the number of
shares of Common Stock equal to $4.5 million divided by the average closing
price of the Common Stock. The purchase price adjustment had the effect of
increasing goodwill by $7.5 million.
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 December 31, 1999, the Company's contingent repurchase liability was
approximately $107.7 million. Historically these repurchase activities have been
negligible.
6
<PAGE> 8
AMERICAN HOMESTAR CORPORATION SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
INVENTORIES
A summary of inventories follows:
<TABLE>
<CAPTION>
MAY 31, DECEMBER 31,
1999 1999
------------ ------------
<S> <C> <C>
Manufactured homes:
New .................................. $ 82,564,000 $ 84,462,000
Used ................................. 9,179,000 6,089,000
Furniture and supplies ................. 10,176,000 4,799,000
Raw materials and work-in-process ...... 16,762,000 9,054,000
------------ ------------
$118,681,000 $104,404,000
============ ============
</TABLE>
INVESTMENT IN AFFILIATE
Summary financial information for the Company's 50% owned subsidiary, 21st
Century Mortgage Corporation, for the three months ended November 30, 1998 and
December 31, 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
NOVEMBER 30, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Total revenues ........................ $ 3,969,000 $ 4,355,000
Net income ............................ $ 537,000 $ 590,000
============ ============
</TABLE>
Summary financial information for the Company's 50% owned subsidiary, 21st
Century Mortgage Corporation, for the six months ended November 30, 1998 and
December 31, 1999 follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
NOVEMBER 30, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Total revenues........................ $ 8,243,000 $ 8,672,000
Net income............................ $ 1,609,000 $ 1,102,000
============ ============
</TABLE>
RESTRUCTURING CHARGE
The Company incurred a restructuring charge during the first quarter of
fiscal year 2000 of $2.3 million due to the closing of one manufacturing
facility. Certain assets used in the affected operation were written down to
their net realizable value. The Company also incurred severance and other
benefit-related costs in connection with the restructuring of operations. The
restructuring charge is shown as a separate component of operating expenses. In
addition to the restructuring charge, the Company also took an inventory
write-down of approximately $0.7 million to allow for reduced selling prices and
selling concessions on the discontinued models of the closed manufacturing
facility at Company-owned retail sales centers and franchise locations. The
additional inventory charge is included in cost of sales for the six months
ended December 31, 1999.
7
<PAGE> 9
AMERICAN HOMESTAR CORPORATION SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
EARNINGS PER SHARE
The following data show the amounts used in computing earnings per share
and the weighted average number of shares of dilutive potential common stock for
the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
NOVEMBER 30, DECEMBER 31,
1998 1999
------------- -------------
<S> <C> <C>
Net income (loss) ............................. $ 5,757,000 $ (7,441,000)
============= =============
Weighted average common shares outstanding .... 17,733,488 18,423,707
Dilutive effect of stock options .............. 957,023 --
------------- -------------
Common shares denominator ..................... 18,690,511 18,423,707
============= =============
SIX MONTHS ENDED
-------------------------------
NOVEMBER 30, DECEMBER 31,
1998 1999
------------- -------------
Net income (loss) ............................. $ 11,541,000 $ (8,876,000)
============= =============
Weighted average common shares outstanding .... 17,568,905 18,422,597
Dilutive effect of stock options .............. 1,012,202 --
------------- -------------
Common shares denominator ..................... 18,581,107 18,422,597
============= =============
</TABLE>
For the three and six months ended December 31, 1999, potentially dilutive
outstanding stock options were 19,544 and 58,636 shares, respectively. These
potentially dilutive options were not included in the loss per share calculation
for the three and six months ended December 31, 1999, as their effect would be
anti-dilutive due to the net loss incurred in the respective periods.
LONG-TERM DEBT
On September 30, 1998, the Company completed the private placement of $46
million of 7.25% Series A Senior Unsecured Notes and $5 million of 7.14% Series
B Senior Unsecured Notes with an average life of eight years and a final
maturity in September 2008. Such notes require quarterly interest payments and
equal annual principal reductions beginning in 2004. Proceeds from the notes
were used to fund acquisitions and expansions with the remainder used for
general corporate purposes.
The Company's amended loan agreements related to the 8.32% Senior Unsecured
Notes issued in July 1997 and the 7.25% Series A and 7.14% Series B Senior
Unsecured Notes described above contain certain requirements as to net working
capital, consolidated net worth, fixed charge coverage and restrictions as to
disposition of assets, additional long-term debt, redemption of common stock,
payment of dividends and prepayment of subordinated debt. The terms of the
agreements, as amended, provide for the maintenance of certain financial
covenants. Because of the operating loss reported by the Company in the second
quarter of fiscal year 2000, the Company
8
<PAGE> 10
AMERICAN HOMESTAR CORPORATION SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
would not have been in compliance with the fixed charge coverage covenant at
December 31, 1999 had the noteholders not granted a waiver of such technical
defaults. The waiver extend to March 31, 2000. The Company has met with the
noteholders and opened negotiations for a more permanent solution. The
noteholders have assured management that they are agreeable to such a
longer-term solution. The Company believes it is highly unlikely that the notes
would be called prior to their maturity.
BUSINESS SEGMENTS
The Company operates primarily in three business segments, retail sales,
manufacturing of manufactured housing and financial services. The following
table summarizes, for the periods indicated, information about these segments:
<TABLE>
<CAPTION>
(IN THOUSANDS)
ADJUSTMENTS/
RETAIL MANUFACTURING OTHER ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
NOVEMBER 30, 1998
Revenues from external
customers .......................... $ 113,219 $ 51,308 $ 4,495 $ -- $ 169,022
Intersegment revenues .............. 826 53,116 1,760 (55,702) --
Interest expense ................... 2,099 795 1,986 (1,848) 3,032
Depreciation and amortization ...... 945 1,038 90 -- 2,073
Segment profit (loss) before
income taxes ....................... 1,007 10,379 (1,207) (753) 9,426
Segment assets ..................... 199,595 135,922 249,911 (204,861) 380,567
Expenditures for segment assets .... 7,748 548 6 -- 8,302
THREE MONTHS ENDED
DECEMBER 31, 1999
Revenues from external
customers .......................... $ 85,044 $ 49,189 $ 4,556 $ -- $ 138,789
Intersegment revenues .............. (483) 34,821 2,624 (36,962) --
Interest expense ................... 2,686 1,021 2,477 (1,846) 4,338
Depreciation and amortization ...... 1,898 1,692 570 -- 4,160
Segment profit (loss) before
income taxes ....................... (8,250) (1,009) (699) 51 (9,907)
Segment assets ..................... 216,014 146,253 339,080 (309,850) 391,497
Expenditures for segment assets .... 604 1,263 690 -- 2,557
SIX MONTHS ENDED
NOVEMBER 30, 1998
Revenues from external
customers .......................... $ 202,945 $ 105,118 $ 8,490 $ -- $ 316,553
Intersegment revenues .............. 1,715 96,393 3,372 (101,480) --
Interest expense ................... 4,143 1,544 3,271 (3,482) 5,476
Depreciation and amortization ...... 1,590 1,785 189 -- 3,564
Segment profit (loss) before
income taxes ....................... 2,758 19,370 (1,439) (2,247) 18,442
Expenditures for segment assets .... 11,155 1,669 423 -- 13,247
SIX MONTHS ENDED
DECEMBER 31, 1999
Revenues from external
customers .......................... $ 183,394 $ 112,396 $ 8,778 $ -- $ 304,568
Intersegment revenues .............. (385) 80,862 5,296 (85,773) --
Interest expense ................... 5,731 2,384 4,810 (4,555) 8,370
Depreciation and amortization ...... 4,381 2,745 767 -- 7,893
Segment profit (loss) before
income taxes ....................... (11,646) (36) (1,226) 132 (12,776)
Expenditures for segment assets .... 3,118 2,641 447 -- 6,206
</TABLE>
9
<PAGE> 11
AMERICAN HOMESTAR CORPORATION SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Intersegment revenues are primarily sales by the manufacturing segment to
the retail segment and are transferred at market price. Earnings (loss) from
affiliates in the consolidated statements of operations relates to the financial
services segment which is included in other segments above. The adjustment to
intersegment revenue is made to eliminate intercompany sales between the
manufacturing and retail segments. The interest expense adjustment is made to
eliminate intersegment interest between the corporate and manufacturing and
retail segments and to net the interest expense on the floor plan credit
facility against the interest earned. The segment assets adjustment is primarily
made up of an adjustment to eliminate subsidiary's equity at the corporate
level, a reclass of the floor plan participation balance and the elimination of
intercompany receivables.
10
<PAGE> 12
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.
GENERAL
American Homestar Corporation is one of the leading vertically integrated
manufactured housing companies in the United States with operations in
manufacturing, retailing, financing and insurance.
In December 1998, the Company acquired R-Anell, which produces manufactured
and modular homes in three facilities located in North Carolina and sells its
homes through approximately 100 independent and Company-owned retail sales
centers located primarily in North Carolina, South Carolina and Virginia.
In March 1999, the Company acquired 25% of the outstanding common stock of
HomeMax from Zaring National Corporation ("Zaring") in exchange for a $4.4
million note, and the Company loaned HomeMax $4 million in exchange for a
subordinated note convertible into an additional 25% of HomeMax's common stock.
The Company also received an option to acquire all of the remaining HomeMax
common stock after three years at a predefined price. Zaring may require, or the
Company may elect, earlier exercise of this option if HomeMax meets certain
performance goals within the three-year period. In connection with this
transaction, the Company entered into a Management and Consulting Agreement with
Zaring and HomeMax pursuant to which the Company will manage the HomeMax
operations. In addition, the Company, Zaring and HomeMax entered into a
Securityholders Agreement providing for the joint control of HomeMax by the
Company and Zaring and certain restrictions on the capital stock of HomeMax.
HomeMax currently operates twelve retail sales centers in North Carolina, South
Carolina and Kentucky.
VERTICAL INTEGRATION AND INTERNALIZATION
The Company's growth strategy is based on an increasing degree of vertical
integration over time. Vertical integration allows the Company to increase its
profit margins on the manufacture and sale of its products, and provides the
ability to realize additional sources of income from financing the sales and
insuring the Company's products.
11
<PAGE> 13
RESULTS OF OPERATIONS
The following table summarizes certain key sales statistics for the three
and six months ended November 30, 1998 and December 31, 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
NOVEMBER 30, DECEMBER 31,
1998 1999
------------- -------------
<S> <C> <C>
Company-manufactured new homes sold at retail .......... 1,406 1,142
Total new homes sold at retail ......................... 1,706 1,302
Internalization rate (1) ............................... 82% 88%
Previously-owned homes sold at retail .................. 459 569
Average retail selling price--new homes (HUD code) ..... $ 53,406 $ 55,444
Average retail selling price--new homes (modular) ...... -- $ 109,749
Number of retail sales centers at end of period ........ 107 122
Total manufacturing shipments .......................... 3,205 2,480
Manufacturing shipments to independent retail sales
centers, including franchisees ......................... 1,504 1,439
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
NOVEMBER 30, DECEMBER 31,
1998 1999
------------- -------------
<S> <C> <C>
Company-manufactured new homes sold at retail ......... 2,655 2,572
Total new homes sold at retail ........................ 3,165 2,914
Internalization rate (1) .............................. 85% 88%
Previously-owned homes sold at retail ................. 995 1,141
Average retail selling price--new homes (HUD code) .... $ 52,871 $ 55,050
Average retail selling price--new homes (modular) ..... -- $ 112,438
Number of retail sales centers at end of period ....... 107 122
Total manufacturing shipments ......................... 6,171 5,557
Manufacturing shipments to independent
dealers, including franchisees ..................... 3,072 3,243
</TABLE>
(1) The internalization rate is the proportion of new homes sold by
Company-owned retail sales centers that are manufactured by the Company.
12
<PAGE> 14
The following table summarizes the Company's operating results, expressed
as a percentage of revenues, for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTH ENDED
------------------------------
NOVEMBER 30, DECEMBER 31,
1998 1999
------------- -------------
<S> <C> <C>
Total revenues ........................................ 100.0% 100.0%
Gross profit .......................................... 27.8% 21.6%
Selling, general and administrative ................... 20.5% 25.6%
Operating income (loss) ............................... 7.3% (4.0%)
Net income (loss) ..................................... 3.4% (5.4%)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
NOVEMBER 30, DECEMBER 31,
1998 1999
------------- -------------
<S> <C> <C>
Total revenues ........................................ 100.0% 100.0%
Gross profit .......................................... 27.3% 22.9%
Selling, general and administrative ................... 19.7% 23.5%
Restructuring charge .................................. -- 0.8%
Operating income (loss) ............................... 7.5% (1.4%)
Net income (loss) ..................................... 3.7% (2.9%)
</TABLE>
Three months ended December 31, 1999 compared to three months ended November 30,
1998
Net Sales. Net sales of manufactured homes were $128.0 million for the
three months ended December 31, 1999, compared to $159.4 million for the three
months ended November 30, 1998. The decrease was primarily the result of a 14%
decrease in the number of new and previously-owned homes sold at retail.
Prevailing industry conditions characterized by a highly competitive retail
environment, increasing interest rates and general credit tightening were all
factors contributing to decreased sales. The weighted average number of new
homes sold per retail sales center in the core Nationwide Housing Corporation
("Nationwide") operations decreased from 17 in the first three months of fiscal
1999 to 16 in the first three months of fiscal 2000. The Company closed two
retail sales centers during the first quarter of fiscal 2000.
Other Revenues. Other revenues increased to $10.8 million for the three
months ended December 31, 1999, compared to $9.6 million for the three months
ended November 30, 1998. Revenues from insurance operations increased to $4.6
million for the three months ended December 31, 1999, compared to $4.5 million
for the three months ended November 30, 1998.
Cost of Sales. Cost of manufactured homes sold were $108.9 million (85.0%
of net sales) for the three months ended December 31, 1999, as compared to
$122.1 million (76.6% of net sales) for the three months ended November 30,
1998. The increase in cost of sales, expressed as a percentage of sales, was
primarily the result of lower gross margins in the Company's retail operations
and in the Company's manufacturing operations due to decreased efficiency in
connection with lower operating levels.
13
<PAGE> 15
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended December 31, 1999, were $35.5
million (25.6% of total revenues), as compared to $34.6 million (20.5% of total
revenues) for the three months ended November 30, 1998. The increase in selling,
general and administrative expenses is attributable to an increase in fixed
costs and expenses at the R-Anell manufacturing facilities which were acquired
in December 1998.
Interest Expense. Interest expense increased 43% to $4.3 million for the
three months ended December 31, 1999, from $3.0 million for the three months
ended November 30, 1998. This increase was primarily attributable to increased
borrowings associated with the Company's private placement of 7.25% Series A and
7.14% Series B Senior Unsecured Notes totaling $51 million in September 1998.
All of the Senior Notes also carried a temporarily higher interest rate of 35
basis points in the quarter ended December 31, 1999.
Income Taxes. The income tax expense (benefit), expressed as a percentage
of income (loss) before income taxes, minority interest and earnings (loss) from
affiliates, was a benefit of (25.7%) for the three months ended December 31,
1999 versus expense of 41.1% for the three months ended November 30, 1998. The
higher effective tax rate was the result of the Company's loss position for the
period and the proportionate relationship of permanent differences, principally
nondeductible goodwill amortization expense, to the loss.
Six months ended December 31, 1999 compared to six months ended November 30,
1998
Net Sales. Net sales of manufactured homes were $283.4 million for the six
months ended December 31, 1999, compared to $297.3 million for the six months
ended November 30, 1998. The decrease was primarily the result of a 3% decrease
in the number of new and previously-owned homes sold at retail. Prevailing
industry conditions characterized by a highly competitive retail environment,
increasing interest rates and general credit tightening were all factors
contributing to decreased sales. The weighted average number of new homes sold
per retail sales center in the core Nationwide Housing Corporation
("Nationwide") operations decreased from 36 in the first six months of fiscal
1999 to 35 in the first six months of fiscal 2000. The Company closed three
retail sales centers during the first six months of fiscal 2000.
Other Revenues. Other revenues increased to $21.2 million for the six
months ended December 31, 1999, compared to $19.3 million for the six months
ended November 30, 1998. Revenues from insurance operations increased to $8.8
million for the six months ended December 31, 1999, compared to $8.5 million for
the six months ended November 30, 1998.
Cost of Sales. Cost of manufactured homes sold were $234.8 million (82.8%
of net sales) for the six months ended December 31, 1999, as compared to $230.2
million (77.5% of net sales) for the six months ended November 30, 1998. The
increase in cost of sales, expressed as a percentage of sales, was primarily the
result of lower gross margins in the Company's retail operations and in the
Company's manufacturing operations due to decreased efficiency in connection
with lower operating levels.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six months ended December 31, 1999, were $71.7
million (23.5% of total revenues), as compared to $62.4 million (19.7% of total
revenues) for the six months ended November 30, 1998. The increase in selling,
general and administrative expenses is attributable to an increase in fixed
costs and expenses at the R-Anell manufacturing facilities which were acquired
in December 1998.
Restructuring Charge, The Company incurred a restructuring charge during
the six months ended December 31, 1999 of $2.3 million due to the closing of one
manufacturing facility. Certain assets used in the affected operation were
written down to their net realizable value. The Company also incurred severance
and other benefit-related costs in connection with the restructuring of
operations. The restructuring charge is shown as a separate component of
operating expenses. In addition to the restructuring charge, the Company also
took an inventory
14
<PAGE> 16
write-down of approximately $0.7 million to allow for reduced selling prices and
selling concessions on the discontinued models of the closed manufacturing
facility at Company-owned retail sales centers and franchise locations. The
additional inventory charge is included in cost of sales for the six months
ended December 31, 1999.
Interest Expense. Interest expense increased 53% to $8.4 million for the
six months ended December 31, 1999, from $5.5 million for the six months ended
November 30, 1998. This increase was primarily attributable to increased
borrowings associated with the Company's private placement of 7.25% Series A and
7.14% Series B Senior Unsecured Notes totaling $51 million in September 1998.
All of the Senior Notes also carried a temporarily higher interest rate of
35 basis points in the quarter ended December 31, 1999.
Income Taxes. The income tax expense (benefit), expressed as a percentage
of income (loss) before income taxes, minority interest and earnings (loss) from
affiliates, was a benefit of (29.6%) for the six months ended December 31, 1999
versus expense of 41.1% for the six months ended November 30, 1998. The higher
effective tax rate was the result of the Company's loss position for the period
and the proportionate relationship of permanent differences, principally
nondeductible goodwill amortization expense, to the loss.
LIQUIDITY AND CAPITAL RESOURCES.
Cash provided by operations was $16.4 million for the six months ended
December 31, 1999. Substantial decreases in receivables and inventory accounted
for a significant portion of the cash provided in the period.
The Company had capital expenditures of $6.2 million for the six months
ended December 31, 1999. These expenditures were used primarily to enhance
existing retail sales centers, manufacturing capacity and for leasehold
improvements with respect to the Company's retail franchisees.
At December 31, 1999, the Company had a $125 million floor plan credit
facility with Associates Housing Finance, LLC ("the Associates"). The facility,
similar to a revolving credit facility, bears interest at a rate of prime less
0.05% and is used to finance the purchase of inventory of new homes at
Company-owned retail sales centers. The Company is able to purchase
participations in the floor plan credit facility, effectively reducing its net
borrowings under the facility. These participations earn interest at a rate of
prime less 0.75% (with such interest income reported as a reduction of total
interest expense) and are immediately available to the Company in cash as the
Company redeems them. At December 31, 1999, the Company had net borrowings of
$73.4 million (gross borrowings of $113.4 million less participations of $40.0
million). In January 2000 the Associates announced that they would be
discontinuing retail and floor plan financing for the manufactured housing
industry. The Company does however have an eighteen-month contract with the
Associates to continue to provide floor plan financing. The Associates has
acknowledged this and assured the Company that it will continue to provide their
floor plan credit facility under the same terms, except that the rate paid to
the Company on its participation balance is being lowered to prime less 1.5%
from prime less 0.75%. The Company has actively engaged in the ordinary course
of business to identify alternative sources of floor plan financing. The Company
has established a $50 million floor plan credit facility with Bombardier Capital
and has had discussions with other lenders who have expressed an interest in
establishing floor plan credit facilities for the Company. The Company intends
to establish smaller floor plan credit facilities with several lenders over time
so as not to be as dependent on a single lender in the future.
On September 30, 1998, the Company completed the private placement of $46
million of 7.25% Series A Senior Unsecured Notes and $5 million of 7.14% Series
B Senior Unsecured Notes with an average life of eight years and a final
maturity in September 2008. Such notes require quarterly interest payments and
equal annual principal reductions beginning in 2004. Proceeds from the notes
were used to fund acquisitions and expansion with the remainder used for general
corporate purposes. The terms of the agreement noted above as well as the 8.32%
Senior Unsecured Notes issued in July 1997, as amended, provide for the
maintenance of certain financial covenants. Because of the operating loss
reported by the Company in the second quarter of fiscal year 2000, the Company
would not have been in compliance with the fixed charge coverage covenant at
December 31, 1999 had the noteholders not granted a waiver of such technical
defaults. The waiver extend to March 31, 2000. The Company has met with the
noteholders and opened negotiations for a more permanent solution. The
noteholders
15
<PAGE> 17
have assured management that they are agreeable to such a longer-term solution.
The Company believes it is highly unlikely that the notes would be called prior
to their maturity.
Management believes that current cash resources, additional borrowing
capacity and future cash provided from operations will be sufficient to satisfy
internal working capital and capital expenditure requirements for the
foreseeable future. Management's current focus is on improving performance and
profitability in existing operations rather than substantial near term growth.
Management has also undertaken a series of initiatives designed to reduce net
debt levels and to enhance overall liquidity over the next two quarters.
IMPACT OF YEAR 2000
Beginning in calendar year 1998, the Company commenced replacement of its
then current information technology system with a new system. The replacement,
which was substantially completed in calendar year 1999, was required to meet
current and future needs of the Company's business as well as to make various
administrative and operating functions more efficient. The costs of upgrading
the Company's software programs, operating hardware and network systems were
approximately $3.3 million, and the Company experienced no Year 2000 problems
and anticipates none in the future related to these new programs and systems.
Costs incurred for external consultants for Year 2000 compliance were
approximately $97,000.
The Company relies upon various vendors, utility companies,
telecommunications service companies, delivery service companies and other
service providers, which are outside of the Company's control. The Company
experienced no Year 2000 business disruptions related to outside vendors.
16
<PAGE> 18
PART II -- OTHER INFORMATION
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 Schedule 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> 19
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: February 14, 2000 By: /s/ Craig A. Reynolds
-----------------------
Craig A. Reynolds
Executive Vice President, Chief Financial
Officer and Secretary (Principal
Financial and Accounting Officer)
18
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUL-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 34,027,000
<SECURITIES> 0
<RECEIVABLES> 30,675,000
<ALLOWANCES> 0
<INVENTORY> 104,404,000
<CURRENT-ASSETS> 185,269,000
<PP&E> 93,786,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 391,497,000
<CURRENT-LIABILITIES> 133,126,000
<BONDS> 0
0
4,500,000
<COMMON> 921,000
<OTHER-SE> 124,803,000
<TOTAL-LIABILITY-AND-EQUITY> 391,497,000
<SALES> 283,359,000
<TOTAL-REVENUES> 304,568,000
<CGS> 234,765,000
<TOTAL-COSTS> 308,765,000
<OTHER-EXPENSES> (209,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,370,000
<INCOME-PRETAX> (12,776,000)
<INCOME-TAX> (3,782,000)
<INCOME-CONTINUING> (8,876,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,876,000)
<EPS-BASIC> (0.48)
<EPS-DILUTED> (0.48)
</TABLE>
