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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10-K/A
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996, OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM
_____________ TO _______________.
COMMISSION FILE NO. 0-26142
BELMONT HOMES, INC.
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(Exact name of registrant as specified in its charter)
MISSISSIPPI 64-0834574
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
HIGHWAY 25 SOUTH, INDUSTRIAL PARK DRIVE, BELMONT, MISSISSIPPI 38827
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 601-454-9217
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.10 PAR VALUE PER SHARE
--------------------------------------
(Title of Class)
Indicate by check mark whether the registrant: (1)
has filed all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |_|
The aggregate market value of the shares of Common
Stock (based upon the closing price of these shares in the over-the-counter
market on March 25, 1996) of the registrant held by nonaffiliates on March 25,
1997 ($8.75 per share), was approximately $61,692,000.
As of March 25, 1997, 9,467,000 shares of the
registrant's Common Stock were outstanding.
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PART I
ITEM 1. BUSINESS
GENERAL
The Company produces and markets a variety of single- and
double-section manufactured homes under a variety of brand names through
approximately 410 dealers and 550 sales centers in 20 states, primarily in the
southern United States. The Company has long-established relationships with most
of its dealers, and management believes these relationships contribute
significantly to the Company's selling efforts. The Company targets its homes to
a variety of price points within the moderately-priced segment of the
manufactured housing market. The Company's single-section homes range in size
from 672 square feet to 1,280 square feet and sell at retail prices between
$12,500 and $34,100. The Company's double-section homes range in size from 1,040
square feet to 2,356 square feet and sell at retail prices between $20,000 and
$59,600. The Company manufacturers homes in 11 production
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facilities, five of which are located in Mississippi, four of which are located
in Arkansas, and two of which are located in Georgia. The Company believes that
its clustering approach to manufacturing enables the Company to achieve certain
economies of scale unavailable to manufacturers with decentralized operations.
The Company, which was incorporated in Mississippi in 1993, is a successor to a
business which commenced operations in 1987.
OPERATIONS
The Company's operating strategy is to produce, at a low
manufacturing cost, practical and high quality homes that are competitively
priced. The following are the key elements of the Company's operating strategy:
(i) to produce practical homes at affordable prices; (ii) to produce low-cost
homes in clustered manufacturing facilities; (iii) to increase penetration in
existing markets and (iv) to expand the Company's geographic presence and
manufacturing capacity.
The Company strives to offer homes with standard features at
competitive prices at a variety of price points within the manufactured housing
market. The designs of the Company's manufactured homes emphasize basic
features, including central heating and a kitchen with a refrigerator and a
range. Most optional features permit the consumer to customize the home.
The Company strives to produce high quality homes at the
lowest manufacturing cost possible. In contrast to competitors that operate
decentralized production facilities, the Company clusters its production
facilities. As a result, the Company is able to utilize a centralized management
team and sales staff for each cluster. Within a cluster, each facility is
dedicated to the production of a particular type of home. This specialized
production system allows the Company to schedule longer production runs of each
type of floor plan, resulting in higher volume, lower manufacturing costs and,
the Company believes, improved quality. A production run often includes more
than 30 floors of the same floor plan. The Company currently has five facilities
clustered in and around Belmont, Mississippi, and four facilities located
approximately ten miles apart in Conway and Bigelow, Arkansas. In addition, with
the acquisition of Bellcrest Homes, Inc. ("Bellcrest") in October 1996, the
Company added two facilities clustered in the Millen, Georgia area.
The Company intends to increase its penetration of its primary
and secondary markets by increasing the number of dealers selling its homes in
each of the 20 states in which the Company's products are currently sold. The
Company plans to continue to concentrate its efforts on the southern region of
the United States because of its dealer and customer relationships and the
substantial opportunity for growth which management believes this region offers.
ACQUISITIONS
The Company's acquisition strategy is to acquire manufacturers
that (i) produce manufactured homes which broaden and complement the Company's
existing product lines, (ii) utilize a complementary independent dealer network,
(iii) operate facilities in areas which will expand the Company's geographic
market and (iv) provide management of the Company with the opportunity to
increase such manufacturer's floor production and operating margins by
implementing the Company's clustered facility manufacturing philosophy and other
operating procedures.
On October 25, 1996, the Company acquired all of the
outstanding capital stock of Bellcrest Homes, Inc. for $9.5 million in cash.
Further, if certain performance criteria are met by Bellcrest, additional
payments equal to $3.5 million will be paid by the Company to the former
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shareholders of Bellcrest. With the acquisition of Bellcrest, the Company
operates 11 manufacturing facilities with an estimated aggregate annual
production capacity of 26,650 floors. The acquisition of Bellcrest broadened the
Company's product lines and strengthened the Company's capacity to produce
multi-section homes. Bellcrest's single-section homes range in size from 924
square feet to 1,280 square feet and sell at retail prices between $22,100 and
$34,100. Bellcrest's double-section homes range in size from 1,144 square feet
to 2,396 square feet and sell at retail prices between $33,300 and $59,600.
Bellcrest's net sales for the fourth quarter of 1997 were approximately $11.8
million. Multi-section homes have historically accounted for more than
two-thirds of the annual sales of Bellcrest.
Although the Company has engaged in preliminary discussions
with respect to potential acquisitions, it does not have any agreements or
understandings with respect to the acquisition of any additional manufacturers
or facilities.
INDUSTRY OVERVIEW
A manufactured home is a complete single-family residence that
is built in a production facility and transported to either a dealer or a home
site. Manufactured homes offer many of the amenities of, and are generally
constructed with the same materials as, site-built homes. The manufactured homes
are built in floors, with homes consisting of one or more floors. Multi-section
homes are joined at the home site by the dealer or an independent installer.
Manufactured homes must meet the national construction and safety standards
building code administered by Housing and Urban Development ("HUD"), which sets
specified industry-wide levels of quality relating to design, materials and
performance standards.
Manufactured housing has historically been one of the most
affordable alternatives for the home buyer. As a result of manufacturing
efficiencies, manufactured homes can be purchased at a lower cost per square
foot than site-built homes. According to the U.S. Census Bureau, in 1994 the
average retail cost per square foot was $22.03 for a single-section manufactured
home and $27.41 for a double-section manufactured home, as compared to an
average of $58.65 for a site-built home. Because of the lower cost of
manufactured homes as compared to site-built homes, manufactured homes
traditionally have enabled first-time home buyers and retirees to overcome the
obstacles of large down payments and high monthly mortgage payments.
According to statistics published by the Manufactured Housing
Institute ("MHI"), the manufactured housing industry's share of the
single-family housing market has increased from 25.7% of total single-family
homes sold in 1992 to 32.4% in 1996. The following table shows the level of new
domestic single-family housing sales and shipments and the portion of such sales
and shipments represented by manufactured and site-built homes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C>
New single-family site-built homes sold(1).............. 610 666 670 667 757
New single-family manufactured homes shipped............ 211 254 304 340 363
--- --- --- ----- -----
Total......................................... 821 920 974 1,007 1,120
=== === === ===== =====
New manufactured homes as a percentage of total(1)...... 25.7% 27.6% 31.2% 33.7% 32.4%
</TABLE>
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(1) New single-family site-built homes sold exclude contractor-built and
owner-built homes and rental properties. For example, in 1994,
contractor-built and owner-built homes and rental properties accounted
for an aggregate of 526,000 single-family housing starts.
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According to the MHI, domestic shipments of manufactured homes
declined by 42.1% from a peak of 295,079 in 1983 to a low of 170,713 homes in
1991. Management of the Company believes that the principal causes for this
decline include economic downturns in certain oil and gas producing states and
the deterioration of general economic conditions culminating in the most recent
national recession. Additionally, excess site-built housing inventories,
contraction in the availability of financing and high levels of apartment
vacancies and repossessed manufactured housing inventories contributed to the
decline in manufactured home sales in certain regions. As a result of these
conditions, the number of manufacturers in the industry fell from 185 in 1983 to
85 in 1991. This trend, however, has reversed, resulting in increased
competition for the Company. In 1996, the number of manufacturers increased to
98 companies with 313 plants, from 92 companies with 285 plants in 1995.
While the industry has historically been seasonal, with lower
shipments occurring in the first and last part of each calendar year, prior to
1996 and since 1991, the manufactured housing industry had experienced a
significant increase in sales during these and other periods, slightly reducing
the seasonality that has affected the industry. According to the MHI, nationwide
shipments in 1996 increased 7% to 363,411 homes from 339,601 homes in 1995,
while industry shipments in the Company's primary and secondary markets
increased by 12.2% and 5.7% respectively. However, according to MHI, monthly
industry shipments declined 5.5% in November 1996 and 4.5% in December 1996
compared to same month sales in 1995. The November 1996 decline was the first
such monthly decline since December 1991. This decline in fourth quarter
shipments represents a return to the seasonality historically present in the
manufactured housing industry. The Company expects that this seasonality will
be present in the first and fourth quarters of 1997.
According to MHI, 1996 was the first year in the history of
the manufactured housing industry that sales of multi-section homes surpassed
sales of single-section homes. In 1996, industry shipments of multi-section
homes increased to 52.2% of all manufactured homes sold in the United States
during the year, from 48.8% in 1995. The Company's shipments of multi-section
homes in 1996 increased to 25.8% or 2,870 homes of the total homes sold by the
Company during the year, from 17% or 1,335 multi-section homes sold in 1995.
Approximately 74% of the homes sold by the Company during 1996 were, therefore,
single-section homes. During the fourth quarter of 1996, although the Company's
shipment of homes increased 5% to 2,905 homes (primarily as a result of the
Company's acquisition of Bellcrest in October 1996), when compared to sales of
2,766 homes in the fourth quarter of 1995, sales of the Company's single-section
homes decreased 12.5% during the fourth quarter of 1996 to 2,000 homes, when
compared to sales of 2,287 single-section homes in the fourth quarter of 1995.
Although management believes the current level of industry
shipments is sustainable based on continued favorable economic and demographic
factors, it does believe that industry conditions have recently become
significantly more competitive and seasonal. Management of the Company believes
that this increased competition is primarily the result of the increasing
number of manufacturers and plants operating in the industry, together with a
related increase in the number of independent and other retail dealers
operating in the Company's territory. The return of seasonality is consistent
with historical trends present in the industry. Management also believes, based
upon recent trends, that the multi-section segment of the industry has become
more competitive among manufacturers and more attractive to purchasers of
manufactured housing. Management believes that this increased competition and
return to seasonality could adversely effect the Company's future sales and
results of operations.
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PRODUCTS
The Company strives to offer homes with standard features at
competitive prices at a variety of price points within the moderately-priced
segment of the manufactured housing market. Management believes that the
acquisition of Bellcrest increased the breadth of the Company's products,
especially in the multi-sectioned product line.
PRODUCT LINES. The Company sells its homes under the Premier,
Glenwood, Delta, Spirit, River Valley, Bellcrest and other brand names. The
number of floor plans offered in each line, range of sizes and retail prices,
and percentage of Company sales for the year ended December 31, 1996 in each
such line are as follows:
<TABLE>
<CAPTION>
TOTAL FLOOR PERCENTAGE OF SALES FOR YEAR ENDED
BRAND NAME TYPE PLANS OFFERED SIZE (SQ. FT.) RETAIL PRICE RANGE December 31, 1996 (1)
- ---------- -------------- ------------- -------------- ------------------ -------------------------------
<S> <C> <C> <S> <C> <C>
Premier, Single-section 81 672 - 1,216 $12,500 - $30,000 42%
Glenwood, Delta
Premier, Double-section 21 1,040 - 1,976 $20,000 - $55,000 23%
Glenwood, Delta
Spirit/River Valley Single-section 16 896 - 1280 $19,500 - $27,800 19%
Spirit/River Valley Double-section 22 1,120 - 2,180 $28,500 - $48,700 11%
Bellcrest Single-section 66 924 - 1,280 $22,100 - $34,100 1%
Bellcrest Double-section 87 1,144 - 2,356 $33,300 - $59,600 4%
Total 293 100.0%
=== =====
</TABLE>
The Company's product lines differ primarily in terms of price, size,
style and quality of furnishings. Premier homes contain two to four bedrooms, a
living room, dining room, kitchen, one or two bathrooms and standard features
such as central heating, a range, refrigerator, furniture, carpet and draperies.
Optional features which may be added to the standard models include, among other
things, fireplaces, vaulted ceilings and patio doors. The Glenwood line features
more expensive carpet, cabinets, draperies, furniture and appliances than the
Premier line. Spirit homes contain a more elaborate floor plan and more
elaborate presentation than Premier homes. Standard features include vaulted
textured ceilings in certain rooms, a range, refrigerator, carpeting and
draperies. Optional features added to the standard models include, among other
things, fireplaces, vaulted textured ceilings throughout, hard board siding,
shingled roofs and storm windows. The River Valley line features less expensive
standard features and fewer options than the Spirit line. The Bellcrest line,
which was acquired in October 1996, includes ten separate brands with homes
offering a variety of standard and optional features similar to the Premier and
Spirit lines.
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DESIGN AND COSTING. The Company designs its homes to provide
attractive, practical features at affordable prices. The Company believes that
it has been able to develop designs that are responsive to consumers' needs
while maintaining low operating costs. In order to continue to provide practical
homes at attractive prices, management annually reviews the Company's existing
designs to determine which designs should be eliminated and which should be
modified to respond to design trends, material availability or cost concerns.
Additionally, in anticipation of trade shows, the Company seeks to develop
several new single-section and double-section models each year.
To control costs, the Company places particular emphasis on
the versatility of the designs so that a few basic features of each decor can be
interchanged within a variety of styles. This flexibility offers the consumer
additional variations of decors to suit their particular tastes. Additionally,
the use of standardized floor plans permits the Company to take advantage of
efficiencies of scale in scheduling. The Company also offers numerous
combinations of exterior designs, including different colors of vinyl siding and
hard board siding, trim and, on its double-section and Wind Zone homes, shingle
roofing.
MANUFACTURING OPERATIONS
FACILITIES. The Company produces its manufactured homes in 11
facilities, five of which are located in Mississippi, four of which are located
in Arkansas and two of which are located in Georgia. The Company's facilities
generally operate on a one shift per day, five days per week basis, 50 weeks per
year. A production manager oversees operations in each facility with the
assistance of five or eight foremen, each of whom is responsible for a
particular stage of the production process. The following table provides certain
information with respect to the Company's manufacturing facilities:
<TABLE>
<CAPTION>
DATE OPENED
FACILITY OR ACQUIRED SQUARE FEET CAPACITY(1)
-------- ----------- ----------- -----------
(IN FLOORS)
<S> <C> <C> <C> <C>
Belmont, MS 1 March 1988 77,000 1,750
2 October 1992 54,000 2,600
3 December 1993 80,000 2,500
4 March 1995 104,000 4,100
Clarksdale, MS 1 August 1995 86,000 2,000
Conway, AK 1 October 1995 (2) 91,000 2,100
2 October 1995 79,500 1,300
3 June 1996 110,000 3,400
4 September 1996 110,000 3,400
Millen, GA 1 October 1996 66,000 2,000
2 October 1996 56,000 1,500
TOTAL 913,500 26,650
======= ======
</TABLE>
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(1) Capacity figures are estimates of management on the basis of one shift
per day, five days per week, 50 weeks per year.
(2) The Company leases this facility on a month-to-month basis.
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Based on significant increases in Company sales of
double-section homes in the past five years, management believes that the demand
for double-section homes will continue to increase as a percentage of
manufactured housing sales, while the market for 14-foot single-section homes
will continue to decline, consistent with the Company's recent experience. As a
result, the Company generally utilizes its larger production facilities to
produce double-section homes and its smaller production facilities to produce
single-section homes.
The Company's production facilities are clustered, which
allows management to minimize the duplication of personnel necessitated by
having production facilities located in different states or regions, enhance
quality control and to reduce start-up costs of additional facilities. The
Company believes it realizes specific cost savings by having one purchasing
staff responsible for the procurement, handling and storage of inventory for its
clustered production facilities. Additionally, the Company is able to utilize
one sales staff for each cluster of its facilities. Manufacturers generally
provide dealers with their products within a limited radius based upon the cost
of transporting the home to the dealer. The cost savings resulting from the
Company's centralized operations and transportation arrangements permit the
Company to expand the radius of its dealer network and still offer its homes at
competitive prices.
The Company's backlog at December 31, 1996 was $8.4 million
for 505 floors compared to $14.5 million for 975 floors at December 31, 1995.
SCHEDULING. Because management believes that the efficient
scheduling of production is essential to its success, the Company generally
schedules lengthy production runs of each type of floor plan in each of its
facilities. Management believes that the Company's scheduling system results in
the production of better quality homes in a more efficient manner. Employees at
each facility construct the same home in repetition during a production cycle,
which familiarizes the employees with their roles in the manufacturing process
for the particular type of home. The employees become more efficient in
performing their tasks, and the quality of their workmanship improves as a
result of this repetition. The Company's sales personnel verify each order
before it is scheduled for production, because dealer orders are subject to
cancellation prior to manufacture for a variety of reasons.
RAW MATERIALS. The principal materials used in the production
of the Company's homes include lumber, gypsum, particleboard, paneling,
insulation, steel, wiring, plumbing, carpet, vinyl, linoleum, fasteners and
hardware items, appliances, electrical items, windows and doors. These materials
and components are generally readily available and are purchased by the Company
from numerous sources on standard industry terms, which generally require
payment within 30 days and offer a 2% discount for payment within ten days. The
proximity of the Company's suppliers permits the delivery of such materials on
an as-needed basis, thereby reducing the need to maintain a significant
inventory of raw materials. No supplier accounted for more than 12.3% of the
Company's raw material purchases during 1996. While the Company is dependent
upon the timely delivery of such raw materials to its facilities, the loss of
any one supplier would not have a material effect on the Company. The Company
purchases the appliances for its homes from General Electric, but the Company is
not a party to and does not intend to enter any long-term contracts with
suppliers. The Company believes its current policy of purchasing from many
suppliers enables it to benefit from lower costs and avoid any supply problems
caused by using one source of raw materials.
During the second half of 1996, the Company invested an
aggregate of approximately $2.5 million in two joint ventures. The first joint
venture, in which the Company invested with Cavalier Homes, Inc. ("Cavalier"),
produces laminated wallboard, paneling and interior doors. The second joint
venture, in which the Company invested with Cavalier and Southern Energy Homes,
Inc., produces cabinet doors. The majority of the 1996 sales for these joint
ventures were to the respective joint venture partners. The Company expects such
sales to increase as the full-year requirements of the joint venture partners
are met
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and through sales to unaffiliated parties. The Company believes that prices
charged by these joint ventures for materials are competitive with the Company's
other sources of materials.
Management believes that the size of its purchases allows it
to obtain favorable volume discounts. The Company's costs of operations,
however, can be significantly affected by the availability and pricing of raw
materials. Sudden increases in demand for construction materials, particularly
lumber and insulation, can greatly increase the costs of production. In the
past, the Company has added a lumber surcharge to the price of its homes to
offset anticipated lumber price increases the Company may experience. While the
Company historically has been able to reflect a significant portion of raw
material cost increases in its current prices by anticipating such increases,
such raw material cost increases cannot always be reflected immediately in the
Company's prices, especially in backlog orders for which price adjustments are
not made, and, consequently, may adversely affect the Company's profitability.
QUALITY CONTROL. The operation of clustered production
facilities allows the dedication of each facility to a particular type of home,
which permits lengthy production runs of the same floor plan. Increased
repetition makes employees more proficient, which results in improved quality.
The Company adheres to strict quality standards, which management believes equal
or surpass standards enforced by HUD, and continually refines its production
procedures to increase productivity and reduce warranty claims. Personnel at
each of the Company's facilities track and correct production deficiencies at
various stages of production that are attributable to the manufacturing process.
In accordance with HUD requirements, an independent HUD-approved, third-party
inspector inspects each of the Company's manufactured homes for compliance
during construction at the Company's manufacturing facilities.
Before a home moves from one production station to another,
the foreman in charge of the station inspects the home. The Company also employs
inspectors who perform a final inspection prior to shipping each home. One of
the inspectors serves as quality control manager and reports the results of the
inspections directly to the President of the Company. In addition, the quality
control manager, the other inspectors and all foremen meet daily to review
problems in production and to suggest improvements to the manufacturing process.
Each facility must be certified in accordance with HUD requirements prior to its
opening for production.
TRANSPORTATION. The Company uses a combination of its own
drivers and common carriers to deliver its homes. The trucks used by the
Company's employee drivers are owned by the driver and leased to the Company.
Each lease is terminable by either party upon 30 days notice. Management
believes that an employee driving his own truck will take better care of both
the truck and the home being delivered. The manufacturing facilities operate by
Spirit Homes, Inc. ("Spirit" or "Spirit Homes") and Bellcrest, subsidiaries of
the Company, utilize common carriers to deliver their homes.
SALES AND DEALER NETWORK
The Company sells manufactured homes through approximately 410
dealers and 550 sales centers in 20 states, principally in the southern United
States. Approximately 80% of the Company's sales during 1996 occurred in its
primary market states of Alabama, Arkansas, Kentucky, Louisiana, Mississippi,
Missouri, Oklahoma, Tennessee and Texas. Management believes that the quality of
its independent dealer network has been, and will continue to be important to
the Company's performance. For the year ended December 31, 1996, net sales at
the Company's ten largest dealers accounted for approximately 20%.
Management believes that providing attractive and well-built
homes at affordable prices is essential to recruiting and retaining dealers. The
Company provides each dealer with a territory which the Company considers
exclusive. Although not contractually bound to maintain any exclusive
territories on behalf of its dealers, management believes this practice
encourages dealer loyalty. The Company markets
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its homes to dealers through target mailings, trade publications and
participation in regional trade shows and participates in advertising campaigns
of its dealers on a cooperative basis. Additionally, the Company supports its
dealers through the distribution of floor plan literature and brochures. The
Company's strategy of selling its homes through independent dealers helps to
ensure that the Company's homes are competitive with those of other
manufacturers in terms of consumer satisfaction, product design, quality and
price.
The Company's senior management and sales personnel maintain
personal contact with the Company's independent dealers. Each member of the
Company's sales staff focuses on a particular region or state and is paid a
commission based upon the sales generated. The Company gives its sales personnel
considerable discretion in the amount and nature of contact with the independent
dealers in their territory, which allows the independent dealers to receive
individualized service. Because these independent dealers have significant
influence over a retail customer's purchase decision, the Company encourages its
independent dealers to promote the Company's homes, monitors each independent
dealer's inventory and offers a volume purchase rebate to all of its independent
dealers. The Company also sponsors activities with dealers at trade shows and
rewards certain dealers with expense-paid promotional trips. The Company does
not have formal marketing agreements with its independent dealers, and
substantially all of the Company's dealers also sell homes of other
manufacturers.
WARRANTIES AND SERVICE
The Company provides the initial consumer with a HUD-mandated
one-year limited warranty on the structure of the home. The Company also offers
a 90-day warranty on plumbing and electrical components. In addition to the
Company's warranty, direct warranties are provided by the manufacturers of the
components, appliances and floor covering included in the homes. Upon delivery
of a home, the dealer completes a checklist detailing any needed repairs to the
home and sends it to the Company's service manager, who is responsible for
taking the necessary corrective action.
Warranty and service expense for the Company approximated 2.1%
of net sales in 1995 and 3.2% of net sales in 1996. The Company maintains a
warranty reserve which management believes is adequate to cover estimated
warranty claims to be incurred and which to date has been sufficient to cover
the Company's warranty expenses. The Company often incurs service expenditures
after the warranty period has expired. Management believes that this practice
increases dealer loyalty and maintains goodwill.
DEALER AND RETAIL FINANCING
Almost all of the Company's dealers finance their purchases
through "floor plan" arrangements under which a financial institution provides
the dealer with a loan for the purchase price of the home and receives a
security interest in the home as collateral. In connection with a "floor plan"
arrangement, the financial institution providing the financing customarily
requires the Company to enter into a separate repurchase agreement with the
financial institution under which the Company is obligated, upon default by the
dealer, to repurchase the homes for an amount equal to the unpaid loan balance
plus certain administrative and handling expenses. At December 31, 1996, the
Company had a contingent repurchase liability under floor plan financing
arrangements of approximately $86.1 million. The risk of loss under such
repurchase agreements is mitigated by the fact that (i) sales of the Company's
manufactured homes are spread over a large number of independent dealers, and
(ii) the price the Company is obligated to pay generally declines over the term
of the repurchase agreement (generally 12 months). The costs incurred by the
Company under such repurchase agreements have been nominal. No assurance can be
given, however, that the Company will not suffer losses with respect to, and as
a consequence of, these financing
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arrangements. The Company has no contingent liability with respect to any
financing arrangement made by the home buyer to purchase his or her home from
the dealer.
COMPETITION
The manufactured housing industry is highly competitive at
both the manufacturing and retail levels, with competition based upon factors
including total price to the dealer, product features, quality, warranty repair
service and the terms of dealer and retail customer financing. A number of firms
such as Fleetwood Enterprises, Inc., Champion Enterprises, Inc., Oakwood Homes
Corporation and Clayton Homes, Inc., among others, have been operating longer
and possess greater manufacturing, financial and other resources than the
Company, and there are numerous firms producing manufactured homes in the states
in which the Company operates, many of which are in direct competition with the
Company in the states where its homes are sold. Certain of the Company's
competitors provide customers with financing from captive finance subsidiaries.
Additionally, management believes that a significant amount of new manufactured
housing production capacity has been developed in the past three years and that
the number of retail dealers has increased during the same period. A downturn in
the manufactured housing industry could result in excess industry capacity,
which in turn could result in increased competition adversely affecting the
Company's results of operations or financial condition. In addition, the Company
competes with other manufacturers, some of which maintain their own retail sales
centers, for quality independent dealers. While management believes that
mortgage financing has generally become more available in the manufactured
housing industry in recent years, a contraction in consumer credit could provide
an advantage to those competitors with internal financing capabilities.
Manufactured homes also compete with site-built homes, as well as apartments,
townhouses, condominiums and existing site-built and manufactured homes. See
"Business - Industry Overview."
The barriers to entry into the manufactured housing industry
are relatively low. Management believes, however, that the qualifications for
obtaining inventory, accounts receivable and finished goods financing, which are
based upon the financial strength of the manufacturer and each of its dealers,
have in recent years become more difficult to meet.
REGULATION
The Company's business is subject to a number of federal,
state and local laws. Construction of manufactured housing is governed by the
National Manufactured Housing Construction and Safety Standards Act of 1974. In
1976, HUD issued regulations under this Act establishing comprehensive national
construction standards. The HUD regulations cover all aspects of manufactured
home construction, including structural integrity, fire safety, wind loads,
thermal protection and ventilation. Such regulations preempt conflicting state
and local regulation on such matters. These regulations are subject to
continual change. New wind load regulations became effective in July 1994 for
certain hurricane-prone areas and new thermal protection standards affecting
all regions of the country to a varying degree became effective October 1994.
Despite the scope and strict enforcement of these regulations, there can be no
assurance that one of the Company's homes will not be damaged or destroyed by
an act of God, especially hurricanes and tornadoes. The Company's manufacturing
facilities and the plans and specifications of its manufactured homes have been
approved at the opening of each facility for compliance with applicable federal
regulations by HUD-designated inspection agencies. An independent, HUD-approved
third-party inspector checks each of the Company's manufactured homes for
compliance during construction. Failure to comply with the HUD regulations
could expose the Company to a wide variety of sanctions, including closing one
or more of the Company's production facilities.
11
<PAGE> 12
Manufactured, modular and site-built homes are all built with
particleboard, paneling and other products that contain formaldehyde resins.
Since February 1985, HUD has regulated the allowable concentration of
formaldehyde in certain products used in manufactured homes and required
manufacturers to warn purchasers concerning formaldehyde associated risks. The
Company uses materials in its manufactured homes that meet HUD standards for
formaldehyde emissions and that otherwise comply with HUD regulations in this
regard. In addition, certain components of manufactured homes are subject to
regulation by the CPSC which is empowered to ban the use of component materials
believed to be hazardous to health and to require, through HUD regulations, the
manufacturer to repair defects in components of its homes. The CPSC, the
Environmental Protection Agency and other governmental agencies have in the past
evaluated the effects of formaldehyde. Regulations of the Federal Trade
Commission also require disclosure of a manufactured home's insulation
specifications.
The transportation of manufactured homes on highways is
subject to regulation by various federal, state and local authorities. Such
regulations may prescribe size and road use limitations and impose lower than
normal speed limits and various other requirements.
The Company's manufactured homes are also subject to local
zoning and housing regulations. A number of states require manufactured home
producers to post bonds to ensure the satisfaction of consumer warranty claims,
but no claims have been made against the Company with respect to these bonds. A
number of states have adopted procedures governing the installation of
manufactured homes. Utility connections are subject to state and local
regulation and must be complied with by the dealer or other person installing
the home.
The Company is subject to the Magnuson-Moss Warranty Federal
Trade Commission Improvement Act which regulates the descriptions of warranties
on products. The description and substance of the Company's warranties are also
subject to a variety of state laws and regulations.
The Company's operations are subject to federal, state and
local laws and regulations relating to the generation, storage, handling,
emission, transportation, disposal and discharge of materials into the
environment. Governmental authorities have the power to enforce compliance with
these regulations, and violations may result in the payment of fines or the
entry of injunctions, or both. Furthermore, the requirements of such
environmental laws and enforcement policies have generally become stricter in
recent years. The Company currently does not believe it will be required under
existing environmental laws and enforcement policies to expend amounts which
will have a material adverse effect on its operating results or financial
condition. The Company is unable to make any assurance, however, that the
ultimate cost of compliance with environmental laws and enforcement policies
will not have a material adverse effect on the operating results or financial
condition of the Company.
EMPLOYEES
As of December 31, 1996, the Company employed 2,251 full-time
employees involved in the following functional areas: manufacturing, 2,006;
transportation, 55; sales, 30; field service, 47; administration and clerical,
94; and management, 19. The Company's manufacturing operations require primarily
semi-skilled labor, and the personnel levels fluctuate with seasonal changes in
production volume. The Company believes that it has a good relationship with its
employees. None of the Company's employees is covered by a collective bargaining
agreement, and the Company has never experienced any work stoppage.
12
<PAGE> 13
TRADEMARKS
The Company has applied with the United States Patent and
Trademark office to register "Belmont Homes," and "Spirit Homes," as trademarks.
Management believes that the "Belmont Homes" and "Spirit Homes" marks have
significant value and are important factors in marketing the Company's products.
INSURANCE
The Company maintains general liability and property
insurance. The costs of insurance coverage vary generally, and the availability
of certain coverage has fluctuated in recent years. While the Company believes
that its present insurance coverage is adequate for its current operations,
there can be no assurance that the coverage is sufficient for all future claims
or will continue to be available in adequate amounts or at reasonable rates. The
Company also posts bonds in those states which require manufactured home
producers to post such bonds to ensure satisfaction of consumer warranty claims.
Additionally, the Company sponsors a self-funded group medical plan for its
employees, which plan is administered by a third party. The plan has obtained
reinsurance coverage which limits the Company's liability thereunder.
13
<PAGE> 14
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
Index to Consolidated Financial Statements, Financial Statement
Schedules and Exhibits
(1) Consolidated Financial Statements and Report of Independent
Certified Public Accountants: See Item 8 herein.
The Consolidated Financial Statements of the Company
required to be included in Part II, Item 8, are indexed on
Page F-1 and submitted as a separate section of this report.
(2) All schedules, other than Schedule II - Valuation and
Qualifying Accounts, are omitted because they are not
applicable or not required, or because the required
information is included in the consolidated financial
statements or notes thereto.
(3) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
<TABLE>
<S> <C>
3.1 -- Restated Articles of Incorporation of the Registrant (1)
3.2 -- Bylaws of the Registrant (1)
4.1 -- Article 5 of the Restated Articles of Incorporation of the Registrant (included in Exhibit 3.1)(1)
4.2 -- Specimen of Common Stock certificate (1)
10.1 -- Registrant's 1994 Incentive Stock Plan (1)
10.2 -- Registrant's 1994 Non-Qualified Stock Option Plan for Non-Employee Directors (1)
10.3 -- Manufacturer Agreement, dated March 21, 1988, between Registrant and Ford Motor Credit Company
(successor to Meritor Creditor Corporation) (1)
10.4 -- Floorplan Repurchase Agreement, dated April 3, 1990, between Registrant and Bombardier Capital,
Inc. (1)
10.5 -- Inventory Repurchase Agreement, dated September 30, 1993, between Registrant and NationsCredit
Commercial Corporation (1)
10.6 -- Pre-Sold Floorplan Financing Agreement, dated January 12, 1994, between Registrant and Green Tree
Financial Corporation (1)
10.7 -- Floorplan Repurchase Agreement, dated October 18, 1994, between Registrant and ITT Commercial
Finance Corp. (1)
10.8 -- Manufacturer's Financing Agreement, dated March 8, 1994, between Registrant and Deere Credit,
Inc. (1)
10.9 -- Registrant's Form of Manufacturer's Repurchase Agreement (1)
10.10 -- Guaranty of Repurchase Obligations between BHI and Bombardier Capital, Inc. dated June 7, 1990 (1)
10.11 -- $500,000 LINE OF CREDIT, DATED JULY 1, 1994, BETWEEN REGISTRANT AND COLONIAL BANK (1)
10.12 -- Noncompetition Agreement between Registrant and Jerold Kennedy (1)
10.13 -- $2,000,000 Line of Credit, dated January 11, 1995, between Registrant and Colonial Bank (1)
10.14 -- Stock Purchase Agreement, dated as of October 1, 1995, among Registrant and John W. Allison, Milburn
Adams, Wendell R. Kennedy, J.B. Pendergraft, Jimmie Don McKissick, Chuck Heriford and Dale
Hancock (2)
10.15 -- Client Services Agreement, dated February 13, 1995, between Spirit Homes, Inc. and TSC Human
Resources III, Inc. (3)
10.16 -- Pre-Sold Floorplan Financing Agreement, dated January 19, 1994, between Spirit Homes, Inc. and Green
Tree Financial Corporation (3)
</TABLE>
22
<PAGE> 15
<TABLE>
<S> <C>
10.17 -- Stock Floorplan Financing Agreement, dated September 29, 1994, between Spirit Homes, Inc. and Green
Tree Financial Corporation (3)
10.18 -- Manufacturer's Financing Agreement between Spirit Homes, Inc. and Deere Credit, Inc. (3)
10.19 -- Floorplan Repurchase Agreement, dated March 13, 1990, between Spirit Homes, Inc. and Bombardier
Capital, Inc. (3)
10.20 -- Manufacturer Agreement dated July 22, 1992, between Spirit Homes, Inc. and Ford Consumer Finance
Company, Inc. (3)
10.21 -- Floorplan Agreement, dated November 23, 1994, between Spirit Homes, Inc. and ITT Commercial
Finance Corp. (3)
10.22 -- $420,076 Fixed Rate Commercial Promissory Note and Loan and Guaranty Agreement, dated July 14,
1995, between Spirit Homes, Inc. and Boatmen's National Bank of Conway (3)
10.23 -- $10,000,000 Revolving Credit Note, dated November 10, 1995, between Registrant and Bank of
Mississippi (3)
10.24 -- $10,000,000 Loan and Security Agreement, dated November 10, 1995, between Registrant and Bank of
Mississippi (3)
10.25 -- Stock Purchase Agreement dated October 25, 1996, among the Registrant, Bellcrest Holding Co., Inc.,
G. Hiller Spann, Joe. H. Bell, James M. Birdwell and Deroy Dailey, Jr.(4)
10.26 -- Form of Pre-Sold Floorplan Financing Agreement, dated February
10, 1994, by and between Bellcrest Homes, Inc. and Green Tree
Financial Corporation (5)
10.27 -- Form of Floorplan Repurchase Agreement, dated August 10, 1993, by
and between Bellcrest Homes, Inc. and Bombardier Capital
Group (5)
10.28 -- Form of Inventory Repurchase Agreement, dated January 4, 1994, by
and between Bellcrest Homes, Inc. and Nationscredit Commercial
Corporation (5)
10.29 -- Form of Manufacturer Agreement, dated January 16, 1987, by and
between Bellcrest Homes, Inc. and Meritor Credit Corporation (5)
10.30 -- Form of Manufacturer's Financing Agreement, dated June 1, 1994,
by and between Bellcrest Homes, Inc. and Deere Credit, Inc.(5)
10.31 -- Form of Floorplan Agreement, dated April 24, 1992, by and between
Bellcrest Homes, Inc. and ITT Commercial Finance Corp.(5)
10.32 -- Form of Manufacturer Agreement dated January 12, 1987, by and
between Bellcrest Homes, Inc. and General Electric Credit
Corporation(5)
11.1 -- Statement re: computation of per share earnings (5)
21.1 -- Subsidiaries of the Registrant (5)
23.1 -- Consent of KPMG Peat Marwick LLP (5)
27.1 -- Financial Data Schedule (for SEC use only) (5)
</TABLE>
- ----------
(1) Incorporated by reference to the exhibits filed with the Registrant's
Registration Statement on Form S-1, Registration No. 33-87868.
(2) Incorporated by reference to the exhibits filed with the Registrant's
Current Report on Form 8-K, filed October 13, 1995, File No. 0-26142.
(3) Incorporated by reference to the exhibits filed with the Registrant's
Registration Statement on Form S-1, Registration No. 33-80823.
(4) Incorporated by reference to the exhibits filed with the Registrant's
Current Report on Form 8-K, filed November 13, 1996, File No. 0-26142.
(5) Filed with original 10-K of Belmont Home, Inc.
23
<PAGE> 16
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
The following is a list of all executive compensation plans and
arrangements filed as exhibits to this Annual Report on Form 10-K:
Exhibit
Number Exhibit
- ------- -------
10.1 Registrant's 1994 Incentive Stock Plan (1)
10.2 Registrant's 1994 Non-Qualified Stock Option Plan for
Non-Employee Directors (1)
- --------------------
(1) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1, Registration No. 33-87868.
(4) Reports on Form 8-K.
On November 13, 1996, the Company filed a Current Report on Form 8-K to
report, pursuant to Item 2, the closing of the Company's acquisition of
Bellcrest and, pursuant to Item 5, that Jerold Kennedy, the President
and Chief Executive Officer of the Company, had been diagnosed with lung
cancer (the "Current Report").
The Current Report was amended by a Current Report on Form 8-K/A filed
by the Company on November 14, 1997 (the "Amendment"). The Amendment was
filed, pursuant to Item 7, to comply with the disclosure requirements of
the Securities and Exchange Commission regarding the financial
statements of businesses acquired.
24
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BELMONT HOMES, INC.
By: /s/ William M. Kunkel
---------------------------------
William M. Kunkel
Excutive Vice President and
November 13, 1997 Chief Financial Officer
<PAGE> 18
BELMONT HOMES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 F-3
Consolidated Statements of Income for the years ended
December 31, 1994, 1995 and 1996 F-4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1994, 1995 and 1996 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE> 19
Independent Auditors' Report
The Board of Directors and Shareholders
Belmont Homes, Inc.:
We have audited the consolidated financial statements of Belmont Homes, Inc. and
subsidiaries as listed in the accompanying index. These consolidated financial
statements are the responsibility of the management of the Company. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Belmont Homes, Inc.
and subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Jackson, Mississippi /s/ KPMG Peat Marwick LLP
February 21, 1997
F-2
<PAGE> 20
BELMONT HOMES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands, except for share information)
<TABLE>
<CAPTION>
December 31,
------------
Assets 1995 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,055 $ 5,070
Certificates of deposit maturing within one year, at cost
which approximates market 6,717 8,243
Accounts receivable 7,302 7,829
Inventories (Note 4) 7,425 13,020
Prepaid expenses and other 1,355 2,661
-------- --------
Total current assets 24,854 36,823
Property, plant and equipment, net (Note 5) 14,812 22,318
Goodwill and other assets, less accumulated amortization
of $855 and $1,359, respectively (Note 3) 10,402 20,214
-------- --------
$ 50,068 $ 79,355
======== ========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Notes and current portion of long-term debt (Notes 7 and 14) $ 4,600 $ 9,093
Trade accounts payable 3,665 3,461
Accrued expenses and other liabilities (Note 6) 5,552 10,744
-------- --------
Total current liabilities 13,817 23,298
Long-term debt (Notes 7 and 14) 6,919 1,303
Deferred income taxes (Note 8) 284 907
-------- --------
Total liabilities 21,020 25,508
-------- --------
Shareholders' equity (Notes 10, 11 and 14):
Preferred stock of no par value -- --
Common stock of $.10 par value. Authorized 20,000,000 shares;
issued and outstanding 5,455,000 and 9,466,500 shares, respectively 546 947
Additional paid-in capital 15,087 27,372
Retained earnings 16,908 29,021
-------- --------
32,541 57,340
Adjustment to predecessor equity (3,493) (3,493)
-------- --------
Total shareholders' equity 29,048 53,847
-------- --------
Commitments and contingencies (Note 12) $ 50,068 $ 79,355
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 21
BELMONT HOMES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands, except for share information)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net sales $ 107,423 $ 150,576 $ 234,050
Cost of sales 89,902 127,165 197,801
Gross profit 17,521 23,411 36,249
Selling, general and administrative expenses 6,731 9,333 17,032
------------- ------------ ------------
Income from operations 10,790 14,078 19,217
------------- ------------ ------------
Other expenses (income):
Interest expense (Note 13) 1,185 825 285
Interest income (123) (511) (705)
------------- ------------ ------------
1,062 314 (420)
------------- ------------ ------------
Income before income taxes 9,728 13,764 19,637
Income tax expense (Note 8) 3,349 5,154 7,524
------------- ------------ ------------
Net income 6,379 8,610 12,113
Dividends on preferred stock (81) (28) -
------------- ------------ ------------
Net income applicable to common shares $ 6,298 $ 8,582 $ 12,113
============= ============ ============
Net income per common share $ 1.20 $ 1.23 $ 1.29
============= ============ ===========
Weighted average common shares outstanding 5,250,000 6,963,000 9,426,000
============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 22
BELMONT HOMES, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(In Thousands, except for share information)
<TABLE>
<CAPTION>
Additional Adjustment
Common paid-in Retained to predecessor
stock capital earnings equity Total
------ ---------- -------- -------------- -----
<S> <C> <C> <C> <C> <C>
Balance (deficit) at December 31, 1993 $ 350 $ - $ 2,071 $ (3,493) $ (1,072)
Net income - - 6,379 - 6,379
------- ---------- ---------- ---------- -----------
Balance at December 31, 1994 350 - 8,450 (3,493) 5,307
Initial sale of common stock to
public (Note 14) 196 15,087 - - 15,283
Dividends on preferred stock - - (152) - (152)
Net income - - 8,610 - 8,610
------- ---------- ---------- ---------- -----------
Balance at December 31, 1995 546 15,087 16,908 (3,493) 29,048
Sale of common stock to public
(Note 14) 80 11,645 - - 11,725
Exercise of stock options 6 751 - - 757
Tax benefit from exercise of
stock options - 204 - - 204
Three for two stock split 315 (315) - - -
Net income - - 12,113 - 12,113
------- ---------- ---------- ---------- -----------
Balance at December 31, 1996 $ 947 $ 27,372 $ 29,021 $ (3,493) $ 53,847
======= ========== ========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 23
BELMONT HOMES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands, except for share information)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,379 $ 8,610 $ 12,113
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 892 1,248 1,899
Deferred income taxes (85) (124) (292)
Changes in operating assets and liabilities, net of effect of
acquisitions:
Accounts receivable (207) (2,300) 334
Inventories (328) (1,560) (3,339)
Prepaid expenses and refundable
income taxes (384) 665 (79)
Other assets (147) 165 (101)
Accounts payable (954) 661 (1,680)
Accrued expenses 1,082 1,178 1,806
---------- ---------- -----------
Net cash provided by operating activities 6,248 8,543 10,661
---------- ---------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment (1,335) (5,447) (5,915)
Purchases of certificates of deposit (2,998) (8,717) (16,114)
Maturities of certificates of deposit 3,299 2,000 14,588
Acquisitions, net of cash acquired (Note 3) - (2,377) (8,145)
Investment in and advances to joint ventures - - (2,511)
Cash restricted for construction - 1,548 521
Other 30 (100) -
---------- ---------- -----------
Net cash used by investing activities (1,004) (13,093) (17,576)
---------- ---------- -----------
Cash flows from financing activities:
Proceeds from notes and long-term debt 6,500 - 38
Repayments of notes and long-term debt (7,127) (12,957) (11,394)
Net borrowings on line of credit agreements - - 8,600
Retirement of preferred stock, including dividends - (1,052) -
Preferred and common stock - 15,283 12,686
---------- ---------- -----------
Net cash provided (used) by financing activities (627) 1,274 9,930
---------- ---------- -----------
Net increase (decrease) in cash and cash equivalents 4,617 (3,276) 3,015
Cash and cash equivalents at beginning of year 714 5,331 2,055
---------- ---------- -----------
Cash and cash equivalents at end of year $ 5,331 $ 2,055 $ 5,070
========== ========== ===========
Supplemental disclosure - interest paid $ 726 $ 1,125 $ 344
========== ========== ===========
Supplemental disclosure - income taxes paid $ 3,802 $ 4,150 $ 6,529
========== ========== ===========
Supplemental disclosure - non cash financing
transactions (See note 3).
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 24
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except for share information)
(1) Basis of Presentation
Belmont Homes, Inc. ("Belmont"), incorporated in Mississippi in June 1993,
is a producer of a variety of single and double section manufactured homes which
are marketed primarily in the southern United States. Belmont and its
wholly-owned subsidiaries, Spirit Homes, Inc., Bellcrest Homes, Inc. and Delta
Homes, Inc. (collectively, the "Company") operate five production facilities in
Mississippi, four production facilities in Arkansas and two production
facilities in Georgia.
The consolidated financial statements include the accounts of Belmont
Homes, Inc. and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation. These financial
statements have been prepared in conformity with generally accepted accounting
principles. Accordingly, management has made estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Material estimates that are particularly susceptible to change in the near-term
relate to determination of estimated costs for warranty claims and promotional
programs. Actual results could differ significantly from those estimates.
(2) Summary of Significant Accounting Policies
(a) Cash Equivalents
Cash and cash equivalents includes demand deposits, savings
accounts and certificates of deposit with an original maturity of
three months or less.
(b) Accounts Receivable
The Company's net sales and related accounts receivable arise
from customers in the manufactured housing industry in the southern
United States and are subject to credit risk inherent in the industry.
Credit is extended in the normal course of business under normal trade
terms. The Company has established an allowance of $37 at December 31,
1995 and 1996, based upon the expected collectibility of its
receivables. Homes are manufactured to dealer orders and a sale is
recognized upon delivery of the home and the transfer of title.
F-7
<PAGE> 25
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(c) Inventories
Inventories are stated at the lower of cost (first-in, first-out)
or market (net realizable value).
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of
plant and equipment is calculated using the straight-line method over
the estimated useful lives of the assets.
(e) Goodwill
Goodwill represents the excess of the purchase price over the
fair value of the net assets acquired and is being amortized over
twenty-five years using the straight-line method.
If facts and circumstances indicate that goodwill may be
impaired, an assessment will be made by the Company to determine if a
writedown is required or if its estimated useful life should be
revised. The assessment will be based primarily on forecasted
operating income, including interest expense, depreciation and
amortization other than goodwill; supplemented if necessary by an
independent appraisal of fair value. The Company believes that no
impairment of goodwill has occurred and that no revision of its
estimated useful life is required.
(f) Product Warranties and Volume Incentives
The Company warrants its homes against manufacturing defects for
a period of ninety days for plumbing and electrical components and for
one year on the basic home structure, commencing at the time of sale
by a dealer, and provides an allowance for warranty claims based on
experience and accumulated statistical data. Expenses related to such
claims are accrued currently as operating expenses based on an
estimate of claims to be incurred and the cost of repairs performed.
F-8
<PAGE> 26
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company awards volume incentive rebates to dealers using a
predetermined formula applied to certain models of homes purchased
during the rebate period. Rebates are paid semi-annually. Based on
management's estimate of rebates which will be earned during the
rebate period, the Company accrues a promotional allowance for rebates
earned but not paid. Related expenses are accrued currently as
operating expenses based on estimates of revenue and the number of
homes sold.
Management believes the liabilities established for warranty
claims and promotional allowances at December 31, 1996 are adequate to
cover the ultimate related net costs, but the liabilities are
necessarily based on estimates and, accordingly, the amounts
ultimately paid will be more or less than such estimates.
(g) Income Taxes
The Company uses the asset and liability method in accounting for
income taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date. Additionally, recognition is required of deferred tax
liabilities and deferred tax assets for the deferred tax consequences
of differences between the assigned values and the tax bases of the
assets and liabilities recognized in a purchase business acquisition.
The income tax benefit resulting from purchased excess tax basis is
accounted for as a reduction of goodwill in the year realized.
(h) Stock Based Compensation
The Company accounts for its stock option plans in accordance
with the provisions of Statement of Financial Accounting Standards No.
123 ("SFAS 123"), "Accounting for Stock Based Compensation", which
provides an alternative to the Accounting Principles Board's Opinion
No. 25 ("APB 25"), "Accounting for Stock Issued to Employees", and is
effective for the year which began January 1, 1996. As permitted by
SFAS 123, the Company will continue to account for its employee stock
plans in accordance with the provisions of APB 25 and provide expanded
disclosures as required under SFAS 123. Accordingly, SFAS 123 will not
have a significant impact on the Company's financial position or
results of operations.
F-9
<PAGE> 27
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(i) Investment in Joint Ventures
The Company accounts for its investments in joint ventures using
the equity method. Financial results from the joint ventures are
recorded as a component of cost of sales in the accompanying
consolidated financial statements.
(j) Accounting Changes
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by the Company be
reviewed for impairment whenever events or changes in circumstances
indicate that their carrying amount may not be recoverable. This
statement requires that the majority of long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell. Implementation of
this statement did not have a material impact on the Company's
consolidated financial statements.
Effective January 1, 1996 the Company adopted SFAS 123 as
described in (h) above.
(k) Net Income Per Share
Net income per share calculations are based on the weighted
average number of common shares and dilutive common share equivalents
outstanding during each period. All earnings per share data have been
adjusted for the three for two stock split declared on November 1,
1996.
(l) Reclassifications
Certain prior years' amounts have been reclassified to conform to
classifications used in 1996.
F-10
<PAGE> 28
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Acquisitions
On October 24, 1996, in a transaction accounted for using the purchase
method of accounting, the Company completed its purchase of 100% of the
stock of Bellcrest Homes, Inc. ("Bellcrest") through the cash payment of
$9,500.
The effects of the acquisition at the purchase date were as follows:
<TABLE>
<S> <C>
Decrease in cash, net $ 7,145
Increase in other current assets 3,422
Increase in property, plant and equipment 3,525
Increase in goodwill and other assets 6,762
Increase in current liabilities 4,756
Increase in long-term debt and deferred income taxes 1,808
</TABLE>
The following unaudited pro forma data are provided for comparative
purposes and are not necessarily indicative of actual results that would
have been achieved had the acquisition of Bellcrest been consummated at an
earlier date and are not necessarily indicative of future results. Assuming
that the acquisition was consummated on January 1, 1995 and January 1,
1996, respectively, unaudited pro forma net sales, net income and net
income per common share, after giving effect to certain adjustments,
including amortization of goodwill and other assets, increased interest
expense on debt related to the acquisition, increased depreciation expense,
and related income tax effects, for the years ended December 31, 1995 and
1996 follow:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Net sales $180,093 $265,374
Net income 8,736 12,204
Net income per common share 1.25 1.29
</TABLE>
In the event Bellcrest attains certain stated levels of earnings
before income taxes for the three month period ended December 31, 1996 and
for each of the years ending December 31, 1997 and 1998, the Company is
required to pay the former Bellcrest shareholders additional consideration
in an amount not to exceed $3,500 in the aggregate. Any such additional
amounts paid will be recorded as goodwill in the period earned. Subsequent
to December 31, 1996, the Company paid $1,000, the amount earned and
accrued for 1996, to the former shareholders.
F-11
<PAGE> 29
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In conjunction with this acquisition, a former Bellcrest shareholder
was issued warrants for the purchase of 75,000 shares of Belmont common
stock. The warrants, which expire in October 2001, are exercisable at
$14.66 per share and their fair value at the issue date was estimated to be
negligible. None of these warrants have been exercised as of December 31,
1996.
In August 1995 Belmont incorporated Delta Homes, Inc., a wholly-owned
subsidiary, and purchased for $450 a production facility in Clarksdale,
Mississippi.
In October 1995 Belmont acquired, in a transaction accounted for using
the purchase method of accounting, all the outstanding common stock of
Spirit Homes, Inc. for $9,500, consisting of cash of $2,450 and debt of
$7,350. The effects of the acquisition at purchase date were as follows:
<TABLE>
<S> <C>
Decrease in cash, net $2,377
Increase in other current assets 5,708
Increase in property, plant and equipment 4,107
Increase in restricted cash 2,069
Increase in goodwill and other assets 5,505
Increase in current liabilities 8,009
Increase in long-term debt and deferred income taxes 7,003
</TABLE>
The following unaudited pro forma data are provided for comparative
purposes and are not necessarily indicative of actual results that would
have been achieved had the acquisition of Spirit been consummated at an
earlier date and are not necessarily indicative of future results.
Assuming that the acquisition was consummated on January 1, 1994 and
January 1, 1995, respectively, unaudited pro forma net sales, net income
and net income per common share, after giving effect to certain
adjustments, including amortization of goodwill and other assets,
increased interest expense on debt related to the acquisition, increased
depreciation expense, and related income tax effects, for the years ended
December 31, 1994 and 1995 follow:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Net sales $143,865 $187,018
Net income 6,730 8,961
Net income per common share 1.27 1.29
</TABLE>
During 1996 the Company acquired a 50% ownership interest in Quality
Housing Supply LLC (Quality), which manufactures gypsum and laminated
wallboard and various exterior and interior home doors. The Company is
entitled to purchase products from Quality and to share in the earnings
(losses) of the operation based on the relative purchases of Quality
product during 1996 and based on a 50/50 split thereafter. Purchases made
by the Company were $2,387 during 1996.
The Company also owns a 33% ownership interest in Ridge Pointe
Manufacturing LLC (Ridge Pointe), which manufactures a variety of cabinet
doors used in the Company's manufactured houses. The Company is entitled to
purchase products from Ridge Pointe, such purchases were not material to
the Company's 1996 consolidated financial statements.
At December 31, 1996, the Company's investment in Quality and Ridge
Pointe was approximately $2,611. Equity in the entities' results of
operations for 1996 was not material.
(4) Inventories
The components of inventories are as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Raw materials $ 4,670 $ 9,702
Work in process 580 798
Finished homes 2,175 2,520
-------- --------
$ 7,425 $ 13,020
======== ========
</TABLE>
F-12
<PAGE> 30
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Property, Plant and Equipment
The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
Estimated
useful life 1995 1996
----------- ---- ----
<S> <C> <C> <C>
Land - $ 873 $ 1,445
Land improvements 15 years 1,211 1,948
Buildings 40 years 6,448 11,798
Machinery, equipment and tools 3 - 7 years 2,986 7,683
Furniture, fixtures and equipment 3 - 7 years 445 708
Automotive equipment 5 years 1,097 1,466
Construction in progress - 2,710 -
Cash restricted for construction 521 -
------- -------
16,291 25,048
Less accumulated depreciation (1,479) (2,730)
------- -------
$14,812 $22,318
======= =======
</TABLE>
(6) Accrued Expenses
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Warranty $ 1,465 $ 3,566
Promotional allowance 1,377 2,916
Salaries and estimated bonuses 1,057 1,561
Payable to former Bellcrest Homes, Inc. shareholders (note 3) -- 1,000
Income taxes 609 718
Other 1,044 983
------- -------
$ 5,552 $10,744
======= =======
</TABLE>
F-13
<PAGE> 31
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Notes and Long-Term Debt
Notes and long-term debt consist of the following:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
(a) 9.25% note payable to bank, due April 1997 $ 170 $ 142
(b) 9.25% note payable to bank, due in monthly instalments
through January 1999 406 367
(c) 6% shareholder note, repaid in 1996 525 -
(d) Notes liquidated in February 1996 with proceeds of secondary
stock offering:
- 6% acquisition notes to former Spirit Homes, Inc.
shareholders 7,350 -
- Variable/Fixed Rate Industrial Development Revenue Bonds 3,000 -
(e) Note payable to bank at prime plus .25%, due in monthly
instalments through March 2006 - 1,065
(f) Amounts due under various line of credit agreements - 8,600
(g) Amounts due under various capital leases 68 222
------- -------
Total notes and long-term debt 11,519 10,396
Less: current portion 4,600 9,093
------- -------
Long-term debt $ 6,919 $ 1,303
======= =======
</TABLE>
The Company has various lines of credit with banks totaling $15,000
which expire at various dates through May 10, 1998. At December 31, 1996
the Company had outstanding letters of credit of $275 under one credit line
issued to satisfy state bonding regulations for service warranty. The
Company's principal credit line, a $10,000 facility, for which there was
$5,000 outstanding at December 31, 1996, bears interest at the bank's prime
rate or LIBOR plus 2.65%. Borrowings under the line are secured by
substantially all of the assets of Belmont. Restrictive covenants require
the maintenance of amounts and ratios of tangible net worth and working
capital.
F-14
<PAGE> 32
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Income Taxes
A reconciliation of actual income tax expense to the computed
"expected" tax expense follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------------------- ------------------- --------------------
Percentage Percentage Percentage
of pre-tax of pre-tax of pre-tax
Amount income Amount income Amount income
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
"Expected" tax expense computed
at normal U. S. Federal
corporate tax rate $3,308 34.0% $4,679 34.0% $6,873 35.0%
State income taxes, net of
Federal benefit 271 2.8 416 3.0 687 3.5
State job credits (341) (3.5) (344) (2.5) (471) (2.4)
Other 111 1.1 403 3.0 435 2.2
------ ---- ------ ---- ------ ----
Actual tax expense $3,349 34.4% $5,154 37.5% $7,524 38.3%
====== ==== ====== ==== ====== ====
</TABLE>
Components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
December 31, 1994:
Federal $ 3,275 $ 5 $ 3,280
State 159 (90) 69
-------- ------- ---------
$ 3,434 $ (85) $ 3,349
======== ======= =========
December 31, 1995:
Federal $ 4,910 $ (43) $ 4,867
State 368 (81) 287
-------- ------- ---------
$ 5,278 $ (124) $ 5,154
======== ======= =========
December 31, 1996:
Federal $ 7,040 $ (102) $ 6,938
State 776 (190) 586
-------- ------- ---------
$ 7,816 $ (292) $ 7,524
======== ======= =========
</TABLE>
F-15
<PAGE> 33
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance
for doubtful accounts $ 14 $ 14
Inventories, due to additional costs inventoried
for tax purposes 82 212
Accrued expenses, due to the timing of deduction 546 1,274
State jobs credit carryforward 91 385
Plant, equipment and other assets, due to different tax
basis and depreciation and amortization methods 100 -
-------- --------
Gross deferred tax assets 833 1,885
-------- --------
Deferred tax liabilities:
Goodwill, due to different amortization period (384) (534)
Plant, equipment and other assets, due to different tax
basis and depreciation and amortization methods - (401)
Other, net - (38)
-------- --------
Gross deferred tax liabilities (384) (973)
-------- --------
Net deferred tax asset $ 449 $ 912
======== ========
</TABLE>
The significant components of deferred income tax expense attributable
to income from continuing operations for the years ended December 31, 1995
and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Increase in net deferred tax asset (exclusive of
the effect of other components listed below) $ (319) $ (463)
Effect of acquisitions:
Spirit Homes, Inc. 195 -
Bellcrest Homes, Inc. - 171
-------- --------
Deferred tax expense $ (124) $ (292)
======== ========
</TABLE>
The state jobs credit carryforward expires on December 31, 1999.
The Company has determined, based on the Company's history of
profitable operations and expectations for the future, that the deferred
tax assets will more likely than not be fully realized and that no
valuation allowance was necessary at December 31, 1995 or 1996.
F-16
<PAGE> 34
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Employee Benefit Plans
Group Medical Plan:
The Company has a self-funded group medical plan which is administered
by a third party administrator. The Plan has reinsurance coverage limiting
its liability for any individual employee loss to $15, with a cap of $348
in aggregate losses in any one year. Incurred claims identified under the
Company's incident reporting system and incurred but not reported claims
are accrued based on estimates that incorporate the Company's past
experience, as well as other considerations such as the nature of each
claim or incident, relevant trend factors and advice from consulting
actuaries. The Company has established a self-insurance trust fund for
payment of claims and makes deposits to the fund in amounts determined by
consulting actuaries. The cost of this plan to the Company was $453, $688
and $1,090 for the years ended December 31, 1994, 1995 and 1996,
respectively.
401(K) Tax-Deferred Savings Plan:
Participants, full time employees with at least six months service,
may elect to contribute up to 15% of their annual compensation to the plan.
The Company may make discretionary matching contributions, which
approximated $167, $146 and $135 for the years ended December 31, 1994,
1995 and 1996, respectively.
(10) Stock Plans
Incentive Stock Plan:
The Company has reserved 600,000 shares of Common Stock for issuance
pursuant to incentive or non-qualified stock options to be granted under
the Belmont Homes, Inc. 1994 Incentive Stock Plan (the "Incentive Plan").
The compensation committee appointed by the board of directors may grant to
officers, directors and key employees non-transferable options to purchase
shares of common stock for terms not longer than ten years (five years in
the case of incentive stock options granted to an individual who, at the
time of the grant, owns more than 10% of the total combined voting power of
all classes of stock of the Company), at prices to be determined by the
board of directors or the compensation committee, which may not be less
than 100% of the fair market value of the common stock on the date of grant
(110% in the case of an individual who, at the time of the grant of
incentive stock options, owns more than 10% of the total combined voting
power of all classes of stock of the Company), in the case of incentive
stock options under Section 422 of the Internal Revenue Code which may be
granted only to employees, and may not be less than 50% of the fair market
value of the Common Stock on the date of grant in the case of non-statutory
stock options. Options granted under the Incentive Plan may be exercisable
in instalments. Unless terminated earlier, the Incentive Plan will
terminate in 2004. The aggregate fair market value of stock with regard to
which incentive stock options are exercisable by an individual for the
first time during any calendar year may not exceed $100 as of the date of
the most recent grant. The Incentive Plan is administered by the
F-17
<PAGE> 35
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
compensation committee of the board of directors. During the year ended
December 31, 1995, options were granted for 75,000 shares at an option
price of $6 per share, of which 30,000 were vested and exercised in 1996.
The Company granted options in 1996 for an additional 393,000 shares under
this plan at $10.67 per share, 54,000 of which were exercised during 1996.
Non-Employee Director Stock Option Plan:
The Company has adopted the Belmont Homes, Inc. 1994 Non-Qualified
Stock Option Plan for Non-Employee Directors (the "Director Plan"), and has
reserved 75,000 shares for issuance under the plan. The Director Plan
provides for the granting of non-qualified stock options to each director
of the Company who is not also either an employee or officer of the company
("non-employee directors"). The Director Plan authorizes the issuance of up
to 75,000 shares of common stock pursuant to options having an exercise
price equal to the fair market value of the common stock on the date the
options are granted.
The Director Plan contains provisions providing for adjustment of the
number of shares available for option and subject to unexercised options in
the event of stock splits, dividends payable in common stock, business
combinations or certain other events. The board of directors shall have no
authority, discretion or power to select the participants who will receive
options pursuant to the Director Plan, to set the number of shares of
common stock to be covered by each option, to set the exercise price or the
period within which the options may be exercised or to alter any other
terms or conditions specified therein, except as set forth below.
The Director Plan provides for the grant on the first trading date
each year (the "grant date") of options to purchase 1,500 shares to each
non-employee director serving the Company on such date. The board of
directors may revoke, on or prior to each January 1, the next automatic
grant of options otherwise provided for by the Director Plan if no options
have been granted to employees since the preceding January 1 under any
employee stock purchase or option plan that the Company might adopt
hereafter.
Each option shall be exercisable as to one-third of the shares subject
to option beginning two years after the grant date, as to two-thirds of
such shares beginning three years after the grant date and in full
beginning four years after the grant date, and shall expire ten years after
the grant date (the "Option Period"), unless canceled sooner due to
termination of service or death, or unless such option is fully exercised
prior to the end of the Option Period.
F-18
<PAGE> 36
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company granted 6,000 options under this plan in 1996 and granted
an additional 6,000 options subsequent to December 31, 1996.
All shares and per share amounts above for both plans are adjusted for
the 3 for 2 stock split in 1996.
Options under both plans are granted at the market price of the shares
on the date of the grants. Additional information follows:
<TABLE>
<CAPTION>
Incentive
stock options Directors plan
------------- --------------
Average Average
Number option price Number option price
of shares per share of shares per share
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 - $ - - $ -
Options granted 75,000 6.00 - -
Options exercised - - - -
------- ------ ----- ------
Balance, December 31, 1995 75,000 6.00 - -
Options granted 393,000 10.67 6,000 12.06
Options exercised (84,000) 9.00 - -
Options forfeited (7,500) 10.67 - -
------- ------ ----- ------
Balance, December 31, 1996 376,500 $10.11 6,000 $12.06
======= ====== ===== ======
</TABLE>
The number of shares of common stock, as well as stock option prices,
were adjusted to reflect the three for two stock split.
Under the Incentive Plan and the Director Plan, the Company may grant
options to its employees and directors for a remaining 139,500 and 69,000
shares of common stock, respectively. The exercise price of each option
equals the market price of the Company's stock on the date of grant.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants made during the years ended
December 31, 1995 and 1996, respectively: no dividend yield; expected
volatility of 46 percent for both years, risk-free interest rates of 5.9
and 5.3 percent, and expected option lives of 4 years for both years
presented.
F-19
<PAGE> 37
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of the status of the Company's stock option plans at
December 31, 1995 and 1996 and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1995 December 31, 1996
----------------- -----------------
Weighted- Weighted-
average average
Stock Options Shares exercise price Shares exercise price
------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year - $ - 75,000 $ 6.00
Granted 75,000 6.00 399,000 10.69
Exercised - - (84,000) 9.00
Forfeited - - (7,500) 10.67
------ ------ ------- -------
Outstanding at end of year 75,000 $ 6.00 382,500 $ 10.15
====== ====== ======= =======
Options exercisable at end of year - 22,800
====== =======
Weighted-average fair value of
options granted during the year $ 2.58 $ 4,49
====== =======
</TABLE>
The following table summarizes information about fixed stock options
for the year ended December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
Number average Weighted- Number Weighted-
Range of outstanding remaining average exercisable average
exercise prices at 12/31/96 contractual life exercise price at 12/31/96 exercise price
--------------- ----------- ---------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$ 6.00 - $ 12.06 382,500 4.1 years $10.15 22,800 $10.67
</TABLE>
The Company applies APB Opinion 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its stock option plans. Had compensation cost been
determined based on the fair value at the grant dates for awards under the
plan consistent with the method of SFAS No. 123, the Company's net income
and income per common share would have been reduced to the pro forma
amounts indicated below for the year ended December 31, 1996. The pro forma
amounts for 1995 are not material.
<TABLE>
<CAPTION>
<S> <C> <C>
Net income As reported $12,113
=======
Pro forma $11,871
=======
Net income per common share As reported $ 1.29
=======
Pro forma $ 1.26
=======
</TABLE>
F-20
<PAGE> 38
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Preferred Stock
The Company's articles of incorporation authorize 5,000,000 shares of
preferred stock. The board of directors has the authority, without any
further vote or action of the shareholders of the Company, to issue shares
of preferred stock in one or more series and to determine the relative
rights and preferences of the shares of any such series.
During the year ended December 31, 1995, 900 outstanding shares were
redeemed at par value plus dividends of $152.
(12) Commitments and Contingencies
It is customary practice for companies in the manufactured home
industry to enter into repurchase agreements with financial institutions
which provide financing to dealers. Generally the agreements provide for
the repurchase of manufactured homes from the financial institutions in the
event of repossession upon dealer's default. The Company's contingent
liability under such agreements was approximately $86,149 at December 31,
1996. There have been no repurchases of homes under these agreements in
1995 and 1996, and there is no accrual for repurchase obligations.
The Company leases delivery trucks from substantially all its drivers
who deliver homes to dealers. Rentals for these trucks are based on a rate
per mile and the leases are cancelable by either party upon thirty days
notice. Rent expense under these leases was approximately $1,982, $2,647
and $3,140 for the years ended December 31, 1994, 1995 and 1996,
respectively.
The Company has pending claims incurred in the normal course of
business which, in the opinion of management, can be disposed of without
material effect on the accompanying consolidated financial statements.
(13) Related Party Transactions
The Company had several notes payable (Note 7) to shareholders and
other related parties. Interest paid and accrued to related parties was
$1,069, $776 and $120 for the years ended December 31, 1994, 1995 and 1996,
respectively.
The Company paid or accrued $200, $690 and $73 in 1994, 1995 and 1996,
respectively, for construction of plant facilities to a company in which a
shareholder and director of the Company is also a shareholder.
F-21
<PAGE> 39
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company paid $10, $8 and $12 in 1994, 1995 and 1996, respectively,
for legal services to a law firm in which a shareholder and director of the
Company is a partner.
The Company paid $272, $367 and $250 for the years ended December 31,
1994, 1995 and 1996, respectively, for the purchase of automotive equipment
from a company in which a shareholder and director of the Company is also a
shareholder.
(14) Public Offerings of Securities
In June, 1995 the Company completed an initial public offering of
2,932,500 shares (adjusted for stock split) of common stock. The net
proceeds of approximately $15,300 were used to retire debt and preferred
stock and for working capital.
In January, 1996 the Company completed a secondary public offering of
1,200,000 shares (adjusted for stock split) of common stock. The net
proceeds of approximately $11,725 were used to retire debt and for working
capital.
Supplemental net income per share for 1995 and 1996, based on net
earnings after adjustment for dividends on preferred stock and the after
tax effect of interest expense on debt repaid with proceeds of the above
offerings, and on the weighted average shares of common stock outstanding
for 1995 and 1996, giving effect to the number of shares sold in the
offerings, the proceeds of which were used to repay such preferred stock
and debt, is as follows assuming the transactions were effective on January
1, 1995:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Net income, as adjusted $ 9,052 $ 12,160
============== ===============
Net income per share $ 1.05 $ 1.28
============== ===============
Weighted average shares 8,598,000 9,512,000
============== ===============
</TABLE>
(15) Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments," requires that the Company
disclose estimated fair values for its financial instruments (as defined).
The Company's financial instruments principally consist of cash and cash
equivalents, certificates of deposit, short-term trade receivables and
payables and various debt instruments. Due to their short term nature, the
fair value of
F-22
<PAGE> 40
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
certificates of deposit, trade receivables and payables approximates their
carrying value. The fair value of the various debt instruments has been
estimated using interest rates currently offered to the Company for
borrowings having similar character, collateral and duration. The fair
market value of such financial instruments approximates the Company's
carrying amounts.
(16) Quarterly Information (Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
First Second Third Fourth Total
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
----------------------------
Net sales $51,445 $61,681 $57,512 $63,412 $234,050
Gross profit 8,015 9,464 8,867 9,903 36,249
Income from operations 4,207 5,563 5,230 4,217 19,217
Net income 2,642 3,539 3,355 2,577 12,113
Net income per common share $ 0.29 $ 0.37 $ 0.35 $ 0.28 $ 1.29
Year ended December 31, 1995
----------------------------
Net sales $25,275 $35,259 $36,739 $53,303 $150,576
Gross profit 3,822 5,772 6,004 7,813 23,411
Income from operations 2,153 3,678 3,872 4,375 14,078
Net income 1,266 2,079 2,561 2,704 8,610
Net income per common share $ 0.24 $ 0.34 $ 0.31 $ 0.33 $ 1.23
</TABLE>
F-23
