================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 27, 2003 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to _____
Commission file number 0-24210
AMERICAN HOMESTAR CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 76-0070846
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
2450 SOUTH SHORE BOULEVARD, SUITE 300, LEAGUE CITY, TEXAS 77573
(Address of principal executive offices, including zip code)
(281) 334-9700
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g):
Series C Common Stock, par value $.01 per share
Series M Common Stock, par value $.01 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 [ ].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes [ ] No [X]
The estimated aggregate market value of voting and non-voting common equity held
by non-affiliates of the registrant is not readily determinable as there have
been no sales and no quoted bid and asked prices as of the last business day of
the registrant's most recently completed second fiscal quarter.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
As of September 23, 2003 the registrant had 100 shares of Series M Common Stock,
par value $.01 per share, and 6,780,364 shares of Series C Common Stock, par
value $.01 per share, issued and outstanding, and 3,219,636 shares of Series C
Common Stock deemed issued, outstanding and held in constructive trust for the
benefit of shareholders to be determined in name and amount as the claims
process arising from the registrant's Third Amended and Restated Plan of
Reorganization is completed.
================================================================================
TABLE OF CONTENTS
PART I
PAGE
----
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . 14
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters. . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . 17
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . 33
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . 33
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . 34
Item 9A Controls and Procedures. . . . . . . . . . . . . . . . . . . . 34
PART III
Item 10. Directors and Executive Officers of the Registrant. . . . . . 35
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . 37
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters. . . . . . . . . . 42
Item 13. Certain Relationships and Related Transactions. . . . . . . . 43
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . 44
PART I
Unless otherwise indicated, "we," "us," "our," "American Homestar," "the
Company," "Management" and similar terms refer to American Homestar Corporation,
its subsidiaries and affiliates. Throughout this report, we use the term
"fiscal," as it applies to a year, to represent the fiscal year ending on the
Friday closest to June 30 of that year.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including items discussed in "Risks
Relating to Our Business" in Item 1 and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Item 7, contains statements
that relate to future plans, events, financial results or performance and which
are defined as forward-looking statements as defined under the Private
Securities Litigation Reform Act of 1995. These statements are based on the
beliefs of the Company's management, as well as assumptions made by management
and currently available information, that, if they never materialize or prove
incorrect, could cause our results to differ materially from those expressed or
implied by such forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," intends," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue," or the negative of these terms or other
comparable terminology. All statements other than statements of historical fact
are statements that could be deemed forward-looking statements, including any
projections of earnings, revenue, synergies, accretion, margins, costs or other
financial items; any statements of the plans, strategies and objectives of
management for future operations, including the execution of integration and
restructuring plans; any statement concerning proposed new products, services,
developments or industry rankings; any statements regarding future economic
conditions or performance; any statements of belief; and any statements of
assumptions underlying any of the foregoing. These forward-looking statements
are only predictions, and may be inaccurate. Actual events or results may differ
materially. In evaluating these statements, you should specifically consider
various risk factors included in this paragraph, as well as elsewhere in this
report and in other SEC filings. These risk factors include, without limitation,
ongoing weakness in the manufactured housing market, continued acceptance of
American Homestar's products, the availability of wholesale and retail financing
in the future and changes in retail inventory levels in the manufactured
housing. Although management believes that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements, and actual results, events or
performance may differ materially. You should not place undue reliance on these
forward-looking statements, which speak only as of the date of this report.
American Homestar undertakes no obligation to publicly release the results of
any revisions to these forward-looking statements that may arise from changing
circumstances or unanticipated events.
ITEM 1. BUSINESS
GENERAL
American Homestar Corporation is a regional vertically integrated
manufactured housing company, with operations in manufacturing, retailing,
transportation, financing and insurance. We were incorporated in Texas in July
1983. Currently, we operate two new home manufacturing facilities and sell homes
through dedicated distribution channels, which include 31 retail sales centers
and three sales offices in manufactured housing communities. In approximately 34
additional manufactured housing communities we display homes that are ready for
sale and occupancy ("spec homes") and model homes, although we do not have an
on-site office. We also distribute homes through approximately 37 independent
retailers and developers located in five states. A third manufacturing facility
is currently used to refurbish lender repossessions.
Starting in July 1994, we adopted a strategy of expanding into several new
regional markets (outside of our core Southwest base of operations) by acquiring
manufacturing capacity and growing our Company-operated store network (through
acquisition and new formation) to support our expanded regional presence. Many
of our competitors were growing and expanding their own company store base in
the same regional markets. By early 1999, overall demand for manufactured
housing had peaked after several years of consistent and significant growth. At
the same time, total manufacturing and retail capacity had grown to the extent
that it surpassed then current levels
2
of end-user demand. The result was lower per-plant and per-store volume and
diminishing profitability for the industry and the Company. Excess finished
goods inventory and excess manufacturing capacity gave rise to steadily
increasing volume and margin pressures. With mounting losses in our retail
operations and diminishing profitability in our manufacturing operations, we
adopted a plan to retract our operations, with the goal of discontinuing
operations in all non-core markets and focusing management and resources on what
we defined as our core Southwest market (Texas and surrounding states).
REORGANIZATION
On January 11, 2001, American Homestar Corporation and twenty-one (21) of
its subsidiaries filed separate voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court of the Southern District of Texas (the "Bankruptcy Court"). On August 14,
2001, the Bankruptcy Court confirmed the Third Amended Joint Plan of
Reorganization of the Company and its subsidiaries (the "Plan"). All conditions
to the effectiveness of the Plan were met and the Plan became effective on
October 3, 2001 (the "Effective Date").
Under the terms of the Plan, all equity interests in the Company were
cancelled as of the Effective Date, and all holders of outstanding shares of
Company stock, which had previously traded under the symbols HSTR and HSTRQ,
lost all rights to equity interests in and to the reorganized Company. Under
the Plan, we have the authority to issue 15 million shares of Series C common
stock and are required to issue 10 million shares of Series C common stock to
our general unsecured creditors. Pursuant to the exemption set forth in Section
1145 of the Bankruptcy Code, we issued shares of Series C common stock to
persons holding allowed unsecured claims in the Company's bankruptcy case and
shares of Series M common stock to management under an incentive program. As of
June 27, 2003, we had issued 10 million shares of Series C common stock, of
which 4,869,250 shares were issued to specific shareholders with allowed claims
under the Plan, and 5,130,750 shares were held in constructive trust for the
benefit of shareholders to be determined in name and amount as the claims
process is completed. We expect the claims process to be completed by April
2004. We also have the authority to issue 7.5 million shares of Series M common
stock to management, 100 shares of which had been issued as of June 27, 2003,
and 4,999,900 shares underlie options authorized under the Company's 2001
Management Incentive Program. As of June 27, 2003, options for 4,899,900 shares
had been approved and granted at an exercise price of $1.35 per share. These
options vest seven years from the date of grant and may vest earlier (up to 20%
per year) if certain annual performance criteria, established by the Board of
Directors, are met.
In connection with its reorganization, the Company adopted "Fresh-Start
Reporting" under American Institute of Certified Public Accountants ("AICPA")
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code," beginning September 29, 2001, which coincided with
the end of the Company's first quarter of our 2002 fiscal year. We elected to
use September 29, 2001, our quarter end, as our Fresh-Start Reporting date
versus the Effective Date of the Plan, October 3, 2001, as interim activity was
not material to the Consolidated Fresh-Start Balance Sheet. Accordingly, all
assets and liabilities of the Company were restated to reflect their
reorganization value, which approximates the fair value of the assets and
liabilities at the Effective Date, and our capital structure was recast in
conformity with the Plan. The adjustment to eliminate the accumulated deficit
totaled $158 million, of which $139 million was forgiveness of debt and $19
million was from Fresh-Start adjustments and is reported in the results of
operations for the three months ended September 29, 2001.
The results of operations and cash flows for the three months ended
September 29, 2001 include operations prior to our emergence from Chapter 11
proceedings, which do not take into account the effects of Fresh-Start
Reporting, and the results of operations and cash flows for the nine months
ended June 28, 2002 include operations subsequent to our emergence from Chapter
11 proceedings and reflect the on-going effects of Fresh-Start Reporting
(American Homestar being referred to herein as "Predecessor Company" for periods
prior to September 29, 2001, and as "Successor Company" for periods subsequent
to September 29, 2001). As a result, the results of operations and cash flows
for the twelve months ended June 27, 2003 for the Successor Company are not
comparable to the results of operations and cash flows for the twelve months
ended June 28, 2002, as the earlier period includes three months of Predecessor
Company operations and cash flows, which do not reflect the effects of
Fresh-Start Reporting, and nine months of Successor Company operations and cash
flows, which do reflect the effects of Fresh-Start Reporting.
3
During our reorganization, we did not prepare or file annual and quarterly
reports with the Securities and Exchange Commission but instead filed Monthly
Operating Reports with the Bankruptcy Court, as required by the Bankruptcy Code.
We also filed our Monthly Operating Reports and our confirmed Plan with the
Securities and Exchange Commission. The reorganized Company has substantially
fewer assets, liabilities and operations than prior to our reorganization.
Additionally, the reorganized Company has entirely new ownership, as the Plan
cancelled all classes of equity securities issued by the Company prior to its
reorganization.
STRATEGY
We adopted a vertical integration strategy in 1991 and used that business
model as we grew in the 1990's. In connection with our reorganization, we
significantly downsized our operations and focused on our core Southwest market
where we are based and where we have historically had our most favorable overall
results. We currently operate 31 retail sales centers and three sales offices in
manufactured housing communities along with a marketing presence (displaying
model homes and spec homes without an on-site sales office) in approximately 34
manufactured housing communities. We also operate three manufacturing plants,
two of which produce new homes and the third refurbishes lender repossessions.
Additionally, we operate an insurance agency, which sells homeowner's insurance,
credit life insurance and extended warranty coverage to our customers. We also
have a 51% ownership interest in a transport company that specializes in the
transportation of manufactured and modular homes and offices. In addition, we
have a 50% interest in a finance company, which specializes in providing chattel
and land/home financing to our customers. In May 2002, we formed a mortgage
brokerage venture, of which we own a 50% interest, to allow us to better control
the placement of our traditional mortgage business and to realize a portion of
the net profits relating to that business. Subsequent to June 27, 2003, we
ceased operations in this mortgage brokerage venture and have focused on
relationships with a broader base of mortgage lenders. Most recently, we have
aligned with several subdivision developers to meet an emerging market segment
in our core market region and to gain greater market share. Management believes
that our regional vertical integration strategy, which derives multiple profit
sources from each retail sale and provides better control over critical
functions, will allow the Company to be more successful, over time, than would
otherwise be the case.
INDUSTRY
A manufactured home is a detached single-family residence that is
constructed in a controlled factory environment and transported to a home site.
Total retail sales of new manufactured homes in the United States were
approximately $8.6 billion in 2002. From 1991 through 1998, the manufactured
housing industry experienced a significant increase in the number of homes sold.
Factory shipments increased from approximately 171,000 homes in 1991 to a
cyclical high of approximately 373,000 homes in 1998. In 1999, 2000, 2001 and
2002 factory shipments declined to approximately 349,000, 251,000, 193,000 and
168,000 respectively. In 2002, manufactured homes accounted for approximately
15% of all new single-family homes completed in the United States, compared to
approximately 23% in 1998 and 17% in 1991. Because of the lower cost of
construction for manufactured homes compared to site-built homes, manufactured
housing has historically served as one of the most affordable alternatives for
the homebuyer. The average retail price of a new manufactured home in 2002 was
$32.16 per square foot, as compared to $75.26 per square foot for a new
site-built home, excluding land costs. In recent years, demand has shifted
toward larger, multi-section homes, which accounted for approximately 78% of the
manufactured homes produced in 2002.
Manufactured homes have traditionally been an alternative for homebuyers
unable or unwilling to make larger down payments and higher monthly payments
associated with site-built homes. Changes in the sub-prime lending markets,
beginning in late 1998, led to interest rate increases for home-only ("chattel")
financing at a time when traditional site-built mortgage interest rates were
generally declining. This condition (rising chattel financing rates and
declining site-built mortgage rates) has negatively affected the relative
affordability of chattel-financed manufactured housing in the Company's core
market area where the costs of land and site-built construction are low compared
to other parts of the country. There has also been a decline in the number of
industry lenders who provide chattel financing for manufactured homes resulting
in higher credit standards being applied to prospective buyers and, therefore, a
decline in the number of prospective customers who qualify for new manufactured
home chattel financing.
4
In addition to the changes in the chattel-lending environment described
above, recent Texas legislation (the 77th Legislature's HB 1869, effective
January 1, 2002) required any land/home package to be closed and financed in the
same manner as a traditional mortgage financing for site-constructed housing.
Chattel financing could be used only in cases where the home is sited on leased
land. Chattel financing is simpler for customers to understand and faster to
process than traditional mortgage financing. Effective June 18, 2003, SB 521
amended the provisions of HB 1869 to allow, at the owner's election, for chattel
financing of a manufactured home that is sited on land owned by the home owner.
We believe SB 521 should moderate the negative impact on manufactured home sales
in Texas by allowing homeowners to use chattel financing if they wish. The
recent availability of traditional mortgage financing (at generally lower
interest rates) to qualified customers is also an important factor in future
sales levels of manufactured homes.
DISTRIBUTION CHANNELS
We currently sell our products through various distribution channels. Most
of our homes are sold through company-operated retail sales centers, and through
on-site subdivision sales teams. We also sell homes to independent retailers
and, most recently, to community developers. Retail franchise operations were
discontinued as a part of the Company's reorganization. The following table sets
forth, for the periods indicated, certain data for (i) shipments of homes
manufactured by the Company to Company-operated retail sales centers and
subdivisions and (ii) shipments of homes manufactured by the Company to
independent retail sales centers and developers, and (iii) the current number of
Company-operated retail sales centers:
YEAR THREE MONTHS NINE MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 29, SEPTEMBER 29, JUNE 28, JUNE 27,
2001 2001 2002 2003
-------- ------------- ----------- --------
PREDECESSOR CO. SUCCESSOR CO.
----------------------- ---------------------
Manufacturing shipments to Company-operated
retail sales centers and subdivisions . . . 1,824 292 1,014 918
Manufacturing shipments to independent retail
sales centers and community developers. . . 1,832 51 162 330
-------- ------------- ----------- --------
Total homes shipped . . . . . . . . . . . . 3,656 343 1,176 1,248
======== ============= =========== ========
Company-operated retail sales centers and
community sales offices at end of period. . 41 41 41 34
We have sales offices in three manufactured housing communities and have a
marketing presence (displaying model homes and spec homes without an on-site
sales office) in approximately 34 manufactured housing communities. Each
Company-operated retail sales center carries a broad selection of fully
furnished and professionally decorated model homes displayed in a landscaped
setting. Our professional sales staff receives continuous training on all of our
products and services and is therefore able to provide customers with a positive
buying experience. We also provide merchandising support and use regional print,
radio and occasional television advertising to promote customer awareness and
enhance the Company's quality image.
In fiscal 2003, 79% of our new home retail sales were multi-section homes,
and our average new home retail sales price was $55,230 compared to the industry
average of $51,300. We currently operate 31 retail centers, of which 28 are in
Texas, one is in Louisiana and two are in Oklahoma. In addition, we have sales
offices in three manufactured housing communities and have a marketing presence
(displaying model homes and spec homes without an on-site sales office) in
approximately 34 manufactured housing communities.
5
The following table sets forth, for the periods indicated, certain
information relating to homes sold by Company-operated retail sales centers:
YEAR THREE MONTHS NINE MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 29, ,SEPTEMBER 29, JUNE 28 JUNE 27,
2001 2001 2002 2003
---------- ---------------- ------------- ----------
PREDECESSOR CO. SUCCESSOR CO.
---------------------------- -------------------------
Average new home sales price. . . . . . . . . $ 54,832 $ 51,403 $ 53,584 $ 55,230
Homes sold:
New homes . . . . . . . . . . . . . . . . 2,499 373 1,001 1,010
Previously-owned homes. . . . . . . . . . 964 149 555 564
Percentage of new homes sold:
Single-section. . . . . . . . . . . . . . 29% 34% 28% 21%
Multi-section . . . . . . . . . . . . . . 71% 66% 72% 79%
Percentage of new homes sold manufactured by:
Company . . . . . . . . . . . . . . . . . 98% 100% 99% 99%
Independent manufacturers . . . . . . . . 2% 0% 1% 1%
Independent Retailers. Independent retailers typically operate one or more
retail sales centers similar to those we may operate. They carry several display
models as well as some homes in inventory. We currently sell to approximately 37
independent retailers and developers located in Colorado, Louisiana, New Mexico,
Oklahoma and Texas. We believe our relations with existing independent retailers
are good. We have no written agreements with our independent retailers, except
for volume purchase discounts agreements, and either party may terminate the
relationship at any time. We generally do not provide inventory financing
arrangements for independent retailer purchases, nor do we consign homes.
Consistent with customary business practice in the manufactured housing
industry, we have entered into repurchase agreements with various financial
institutions and other credit sources under which we have agreed, under certain
circumstances, to repurchase manufactured homes sold to independent dealers in
the event of a default by such independent dealer on their obligation to such
credit sources. Under the terms of such repurchase agreements, we agree to
repurchase manufactured homes at declining prices over the periods of the
agreements (which generally range from 18 to 24 months). While repurchase
activity is very sporadic and cyclical, the Company provides for anticipated
repurchase losses. At June 27, 2003, the Company was at risk to repurchase
approximately $1.2 million of manufactured homes and has provided for estimated
net repurchase losses of approximately $0.2 million.
Developers. We have recently expanded our distribution base through
relationships with several builder-developers that are developing manufactured
housing rental and owner communities in our market areas. In most of these
instances, we have written agreements with the developer that define the number
of homes we will supply, the specifications and prices of the homes and the
nature of our relationship. In some cases we provide up to five model homes and
assist, to varying degrees, in the marketing and sale of the homes and
homesites. We believe this will be a growing segment of our business in the
future and believe that our early, successful track record may provide us a
competitive advantage over others in our industry.
In March, 2003, the Company invested $50 for a 49.5% interest in Humble
Springs LTD, a land development joint venture. The other partners in the venture
are a land development company and certain of its affiliates, none of whom are
affiliated with the Company. This venture will develop a new manufactured
housing subdivision for homes to be rented and sold. We will be the exclusive
supplier of homes to the project and will share in the development profits. We
currently plan to enter into several other similar ventures with this same
developer in the future.
6
MANUFACTURING
We manufacture a broad selection of HUD-code homes ranging from
traditional, lower-priced homes to distinctive, higher-priced homes. We have
also started to produce modular (Industrialized Housing and Building or
IHB-code) homes in our core market area. HUD-code homes conform to national
construction standards promulgated and regulated by HUD. Modular homes conform
to a different construction standard (IHB-code) and are generally less zoning
restricted than HUD-code homes. We believe that the addition of modular homes
broadens our potential markets and will allow us to sell more homes, over time,
than by limiting our production and marketing strictly to HUD-code homes. Our
new homes retail from $18,700 to $120,800, excluding land costs.
The following table sets forth the total HUD code homes and the total
modular (IHB-code) homes manufactured by our two Texas new-home facilities
currently operating:
THREE MONTHS NINE MONTHS YEAR
ENDED ENDED ENDED
SEPTEMBER 29, JUNE 28, JUNE 27,
2001 2002 2003
------------- ----------- --------
HUD Code . . . . . . 340 1,163 1,164
IHB (Modular) - Code 3 13 84
------------- ----------- --------
Total. . . . . . . 343 1,176 1,248
============= =========== ========
By providing such a broad selection of homes, we believe we can meet the
financial and aesthetic requirements of the full range of retail buyers.
Additionally, we believe we offer high quality homes that incorporate more
innovative architectural designs and features than are typically offered by our
competitors. Over the past several years, as the demand for multi-section homes
has increased, we have significantly increased our production of multi-section
homes to 86% of total homes manufactured in fiscal 2003, up from 50% in fiscal
1994.
The Company's manufacturing facilities generally operate on a one shift per
day, five-day per week basis. At June 27, 2003, our two operating new-home
production facilities had the capacity to produce approximately 20 floors per
day, and the production rate was approximately nine floors per day (capacity
figures are estimates of management). A floor is a single-section home or one
section of a multi-section home. The following table sets forth the total homes
and floors manufactured by the Company for the periods indicated:
YEAR THREE MONTHS NINE MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 29, SEPTEMBER 29, JUNE 28, JUNE 27,
2001 2001 2002 2003
-------- ------------- ----------- --------
PREDECESSOR CO. SUCCESSOR CO.
----------------------- ---------------------
Homes manufactured:
Single-section. . . . 535 111 306 173
Multi-section . . . . 3,121 232 870 1,075
-------- ------------- ----------- --------
Total homes manufactured. 3,656 343 1,176 1,248
======== ============= =========== ========
Total floors manufactured 6,777 575 2,046 2,319
======== ============= =========== ========
The principal materials used in the construction of our homes include
lumber and lumber products, gypsum wallboard, steel, aluminum, fiberglass,
carpet, vinyl, fasteners, appliances, electrical items, windows and doors.
Generally, the materials used in the manufacture of our homes are readily
available at competitive prices from a wide variety of suppliers. Accordingly,
we do not believe the loss of any single supplier would have a material adverse
effect on our business. Our direct or variable costs of operations, however, can
be significantly affected by the market-wide availability and pricing of raw
materials.
7
We generally build a home only after an order has been received and
acceptable payment arrangements have been made. In accordance with industry
practice, dealers can cancel orders prior to the commencement of production
without penalty, and accordingly, the Company does not consider its backlog of
orders from independent dealers to be firm orders. Because of the seasonality
of the market for manufactured homes, the level of backlog at any time is not
necessarily indicative of the expected level of future orders. Our backlog, as
well as level of new orders from independent dealers, generally declines during
the winter months (mid-November through February).
FINANCING
In June 2000, we invested $2.4 million to provide one-half of the initial
capitalization of Homestar 21, LLC ("Homestar 21"), which is a joint venture
that is owned 50% by the Company and 50% by 21st Mortgage Corporation ("21st
Mortgage"), a company not affiliated with us. Homestar 21 is a finance company,
specializing in providing chattel and non-conforming land/home financing to our
customers. We account for our investment in Homestar 21 using the equity method.
In May 2002, we invested $31,500 to provide one-half of the initial
capitalization of American Homestar Mortgage, L.P. ("Homestar Mortgage"), which
is a joint venture that is owned 50% by us and 50% by Home Loan Corporation
("Home Loan"), a company not affiliated with us. Homestar Mortgage is a mortgage
broker/loan originator for ultimate loan placement with Home Loan and other
mortgage banks. Homestar Mortgage bears no lending risk on loans it originates.
We account for our investment in Homestar Mortgage using the equity method. In
August 2003 (after year-end) we agreed, along with Home Loan, to cease
operations in Homestar Mortgage and to develop a broader network of preferred
lending relationships with several independent traditional mortgage lenders.
To ensure that we remain fully competitive and have access to all retail
financing products available, we maintain relationships with several independent
mortgage and chattel retail lenders. These relationships are intended to spread
the business more evenly among various lenders and to ensure that financing is
available from several sources. We believe that these relationships afford us
access to a broader range of competitive financing programs that, in turn, may
result in increased retail sales.
INSURANCE
Through our wholly owned subsidiary, Western Insurance Agency, Inc.
("Western"), we offer our retail customers a variety of insurance products,
including property and casualty insurance, credit life insurance and extended
service contracts. We act as the agent and earn commissions and profit-sharing
bonuses, in favorable loss years, from insurance written for the purchasers of
manufactured homes we sell.
Through our wholly owned subsidiary, Lifestar Reinsurance Ltd. ("Lifestar")
we underwrote the risk on credit life policies we sold. We elected to cease
operations in Lifestar in May 2002 because the life insurance underwriting
activity was producing steadily declining returns. Instead we will share in
favorable loss experience, if any, as to the life insurance as well as the
property and casualty insurance through new agreements between the insurers and
Western.
TRANSPORTATION
Roadmasters Transport Company, Inc. ("Roadmasters"), a 51% owned
subsidiary, provides manufactured housing transportation services, including
transportation of manufactured homes from our manufacturing facilities.
Roadmasters operates through independent owner-operators, allowing us to cover a
large geographic area with no investment in equipment. We believe that our
controlling ownership interest in Roadmasters provides us better control over
the delivery of homes to our retail sales centers and subdivisions and to
independent retailers and developers, especially during peak sales and delivery
periods, as well as to profit from each home shipment.
COMPETITION
The manufactured housing industry is highly competitive. Competition with
other housing manufacturers on both the manufacturing and retail levels is based
primarily on price, product features, reputation for service and
8
quality, retail inventory, merchandising, and the terms and availability of
wholesale and retail customer financing. Growth in manufacturing capacity during
the 1990s increased competition at both the manufacturing and retail levels and
resulted in both regional and national competitors increasing their presence in
the markets in which we compete. Overproduction of manufactured housing in these
regions could lead to greater competition and result in decreased margins, which
could have a material adverse effect on our results of operations.
In addition, manufactured homes compete with new and existing site-built
homes, apartments, townhouses and condominiums. The supply of such housing has
increased in recent years with the increased availability of construction and
low cost mortgage financing, which continues to reduce the demand for
manufactured homes. Manufactured homes also compete with resales of homes that
have been repossessed by financial institutions as a result of credit defaults
by dealers or customers. Repossession rates for manufactured homes have
increased in recent years and there can be no assurance that repossession rates
will not continue to increase, thereby adversely affecting our sales volume and
profit margins. The manufactured housing industry, as well as the site-built
housing development industry, has experienced consolidation in recent years,
which could result in the emergence of competitors, including developers of
site-built homes that have greater financial resources than we have. We are not
able to estimate the total number of retail and manufacturing competitors in our
marketing area.
GOVERNMENT REGULATION
The Company's manufactured homes are subject to a number of federal, state
and local laws and codes. Construction of manufactured homes is governed by the
National Manufactured Home Construction and Safety Standards Act of 1974, as
amended (the "MHCSS Act"), and the regulations issued by the Department of
Housing and Urban Development ("HUD") thereunder, that establish comprehensive
national construction standards. These regulations cover all aspects of
manufactured home construction, including structural integrity, fire safety,
wind loads, thermal protection and ventilation. Our manufacturing facilities and
the plans and specifications of our manufactured homes have been approved by a
HUD-designated inspection agency. Our homes are regularly inspected by an
independent HUD-approved inspector for compliance during construction. Failure
to comply with applicable HUD regulations could expose us to a wide variety of
sanctions, including mandated closings of our manufacturing facilities. We
believe our manufactured homes meet or surpass all present HUD requirements.
We are also subject to the Texas Industrialized Housing and Buildings Act
("IHB"), which regulates the construction of modular buildings, both residential
and commercial, and modular components in the State of Texas. We believe our
modular homes meet or surpass all IHB requirements.
Manufactured, modular and site-built homes are all typically built with
particleboard, paneling and other products that contain various formaldehyde
resins. HUD regulates the allowable concentration of formaldehyde in certain
products used in manufactured homes and requires warnings to purchasers
concerning formaldehyde-associated risks. Certain components of manufactured
homes are subject to regulation by the Consumer Products Safety Commission
("CPSC"), which is empowered to ban the use of component materials believed to
be hazardous to health and to require the manufacturer to repair defects in
components of its homes. The CPSC, the Environmental Protection Agency and other
governmental agencies currently are re-evaluating the allowable standards for
formaldehyde emissions. We use materials in our manufactured homes that meet the
current HUD standards for formaldehyde emissions and believe that we otherwise
comply with HUD and other applicable government regulations in this regard.
The manufacturing operations of the Company are subject to the requirements
of the Occupational Safety and Health Act ("OSHA") and comparable state laws.
Regulations promulgated under OSHA by the Department of Labor require employers
of persons in manufacturing industries, including independent contractors, to
implement work practices, medical surveillance systems, and personnel protection
programs in order to protect employees from workplace hazards and exposure to
hazardous chemicals. Regulations such as OSHA's Process Safety Management (PSM)
standard require facility owners and their contractors to ensure that their
employees are adequately trained regarding safe work practices and informed of
known potential hazards. We have established comprehensive programs for
complying with health and safety regulations. While we believe that we operate
our manufacturing facilities safely and prudently, there can be no assurance
that accidents will not occur or that we will not incur liability in connection
with the operation of our business.
9
Our operations are also subject to the provisions of the Texas Manufactured
Housing Act, the Consumer Credit Act and the Truth-in-Lending Act, as well as
local zoning and housing regulations. A number of states require manufactured
home producers and retailers to post bonds to ensure the satisfaction of
consumer warranty claims. 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 operations of Roadmasters and Western are subject to
regulation by various federal, state and local authorities.
A variety of laws affect the financing of manufactured homes by the
Company. The Truth-in-Lending Act and Regulation Z promulgated thereunder
require written disclosure of information relating to such financing, including
the amount of the annual percentage rate and financing charge. The Fair Credit
Act also requires certain disclosures to potential customers concerning credit
information used as a basis to deny credit. The Federal Equal Credit Opportunity
Act and Regulation B promulgated thereunder prohibit discrimination against any
credit applicant based on certain specified grounds. The Federal Trade
Commission has adopted or proposed various trade regulation rules dealing with
unfair credit and collection practices and the preservation of consumers' claims
and defenses. The Federal Trade Commission regulations also require disclosure
of a manufactured home's insulation specification. Installment sales contracts
eligible for inclusion in the Government National Mortgage Association Program
are subject to the credit underwriting requirements of the Federal Housing
Administration. The Real Estate Settlement Procedures Act and Regulation X
promulgated thereunder require certain disclosures regarding the nature and cost
of real estate settlements. A variety of state laws also regulate the form of
installment sales contracts and the allowable charges pursuant to installment
sales contracts. The sale of insurance products by the Company is subject to
various state insurance laws and regulations, which govern allowable charges and
other insurance products.
We are also subject to the provisions of the Fair Debt Collection Practices
Act, which regulates the manner in which we collect payments on installment sale
contracts, and the Magnuson-Moss Warranty-Federal Trade Commission Improvement
Act, which regulates the descriptions of warranties on products Our collection
activities and warranties are also subject to state laws and regulations.
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.
Our operations are also subject to federal, state and local laws and
regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. We are not aware
of any pending litigation to which we are a party or any claims that may result
in significant contingent liabilities related to environmental pollution or
asbestos. In addition, we do not believe we will be required under existing
environmental laws and enforcement policies to expend amounts that will have a
material adverse effect on our results of operations or financial condition.
A significant portion of the Company's manufacturing labor force includes
persons who are not U.S. citizens, and we are subject to the regulations of the
Immigration and Naturalization Service ("INS"). We adhere to the procedures
required for the prevention of the hiring of illegal aliens, but, nonetheless,
we have from time to time experienced losses of a portion of our labor force due
to INS investigative operations and these losses have temporarily decreased
production at the affected manufacturing facilities.
In general, legislation is proposed from time to time that, if enacted,
would significantly affect the regulatory climate for manufactured and modular
homes. At present, it is not possible to predict what, if any, changes or
legislation may be adopted or the effect any such changes or legislation may
have on the Company or the manufactured housing industry as a whole.
EMPLOYEES
At June 27, 2003, we employed 672 people, compared to 770 at June 28, 2002.
Of our 672 employees, 217 were employed in retail, 375 in manufacturing, 34 in
transportation, 9 in insurance, and 37 in executive and administrative
10
positions. We do not have any collective bargaining agreements and have not
experienced any work stoppages as a result of labor disputes. We consider our
employee relations to be good.
A significant portion of the total potential compensation of senior and
middle management of the Company is derived from incentive bonuses based on the
operating income of the operating unit for which such management is responsible,
as well as the attainment of Company-wide performance objectives. Many of our
managers are participants in the option grants of Series M common stock under
the Company's 2001 Management Incentive Program established by the Plan.
RISKS RELATING TO OUR BUSINESS
If any of the following risks actually occur or worsen, they could
materially adversely affect our business, financial condition or operating
results.
EXCESS INVENTORIES AMONG RETAILERS COULD CONTINUE TO HAVE A NEGATIVE EFFECT ON
OUR SALES VOLUME AND PROFIT MARGINS.
The level of manufactured housing inventories and the existence of
repossessed homes in the market can have a significant impact on manufacturing
shipments and operating results, as evidenced in the manufactured housing
industry during the past three years. There is currently an imbalance among the
number of retail dealers, industry retail inventories and consumer demand for
manufactured homes. Considering current retail demand, it is estimated that
there may be as much as a six-month supply of manufactured homes in retailer
inventories industry-wide. Competition from resales of repossessed homes has
further extended this inventory adjustment period as more liberal lending
standards in the past resulted in loans to less-creditworthy customers. Many of
these customers are defaulting on these loans and the lenders are repossessing
the customers' homes and reselling them at prices often significantly below the
retail price of a new home, thereby increasing competition for manufacturers of
new homes. If these trends were to continue, or if retail demand were to
significantly weaken further, the excess inventory supply could result in
intense price competition and pressure on profit margins within the industry and
could have an adverse impact on our operating results.
THE CURRENT DOWNTURN IN THE MANUFACTURED HOUSING INDUSTRY HAS ADVERSELY AFFECTED
OUR OPERATING RESULTS. IF THE CURRENT DOWNTURN DOES NOT REVERSE, OUR SALES COULD
DECLINE AND WE MAY SUFFER FURTHER LOSSES.
Since mid-1999 the manufactured housing industry has experienced declining
manufacturing shipments, tightened consumer credit standards, excess retail
locations and inventory, reduced availability of consumer financing, high levels
of homes repossessed from consumers, higher interest rates on manufactured
housing loans relative to those generally available to site-built home buyers, a
reduced number of consumer and floor plan lenders, and reduced floor plan
availability in the industry. According to the Manufactured Housing Institute,
factory shipments declined from a cyclical high of approximately 373,000 homes
in 1998 to 168,000 in 2002. If the current downturn in the industry continues,
our sales could continue to decline and we may incur further losses including
additional closures or consolidations of existing operations.
OUR BUSINESS IS SEASONAL AND CYCLICAL AND THIS LEADS TO FLUCTUATIONS IN SALES,
PRODUCTION AND OPERATING RESULTS.
We have experienced, and expect to continue to experience, significant
variability in sales, production and net income as a result of seasonality in
our business. Demand in the manufactured housing industry generally declines
during the winter season, while sales and profits are generally highest during
the spring and summer months. The industry in which we operate is highly
cyclical and there can be substantial fluctuations in our manufacturing
shipments, retail sales and operating results, and the results for any prior
period may not be indicative of results for any future period. We are affected
by interest rates for manufactured homes and for sited homes and the
availability of financing for manufactured housing products, both of which have
had an adverse effect on our business in the past two fiscal years. Unemployment
trends, consumer confidence, general economic conditions and effects on
consumers from terrorist actions may also affect our business.
11
TIGHTENED CREDIT STANDARDS, CURTAILED LENDING ACTIVITY, TIGHTENED TERMS AND
INCREASED INTEREST RATES AMONG CONSUMER LENDERS HAVE REDUCED OUR SALES. IF
CONSUMER FINANCING WERE TO BECOME FURTHER CURTAILED OR UNAVAILABLE WE COULD
EXPERIENCE FURTHER SALES DECLINES.
The consumers who buy our homes have historically secured consumer
financing from third party lenders. The availability, terms and costs of
consumer financing depend on the lending practices of financial institutions,
governmental regulations and economic and other conditions, all of which are
beyond our control. A consumer seeking to finance the purchase of a manufactured
home without land will generally pay a higher interest rate and have a shorter
loan term than a consumer seeking to finance the purchase of land and the home.
Manufactured home consumer financing is at times more difficult to obtain than
financing for site-built homes. Since 1999, consumer lenders have tightened the
credit underwriting standards and loan terms and increased interest rates for
loans to purchase manufactured homes, which have reduced lending volumes and
caused our sales to decline. Conseco, Inc. has historically been one of the
largest consumer lenders in the manufactured housing industry. In October 2002,
Conseco discontinued providing financing for the manufactured housing industry
and filed a petition for bankruptcy in December 2002. The poor performance of
portfolios of manufactured housing consumer loans in recent years has made it
more difficult for industry consumer finance companies to obtain long-term
capital in the asset-backed securitization market. As a result, consumer finance
companies have curtailed their industry lending and some have exited the
manufactured housing market. If consumer financing for manufactured homes were
to become further curtailed or unavailable, we would likely experience further
retail and manufacturing sales declines.
REDUCED NUMBER OF FLOOR PLAN LENDERS AND REDUCED AMOUNT OF CREDIT ALLOWED MAY
AFFECT OUR ABILITY TO INVENTORY NEW HOMES.
During 2002 the industry's two largest floor plan lenders, Conseco and
Deutsche Financial Services who recently provided as much as approximately 45%
of the industry's wholesale financing, exited the business thereby reducing the
amount of credit available to industry retailers. The remaining floor plan
lenders or new floor plan lenders entering the industry may change the terms of
their loans as compared to the traditional terms of industry floor plan loans.
These changes could include higher interest rates, smaller advance rates,
earlier or more significant principal payments or longer repurchase periods for
the manufacturers. Although our floor plan debt levels are very low today,
further reductions in the availability of floor plan lending may adversely
affect our ability to carry a sufficient inventory level of new homes when our
current line matures in October 2004.
WE ARE AFFECTED BY OUR ABILITY TO SECURITIZE OR FUND LOANS.
We offer chattel and non-conforming land home mortgage loans to our
customers through Homestar 21. Homestar 21 in the past has entered into
asset-backed securitization transactions to obtain longer term funding for these
loans. The asset-backed securitization market for manufactured housing lenders
has continued to deteriorate in the past year in terms of access to the markets
as well as pricing and credit enhancement levels. If Homestar 21 is unable to
securitize its loans on terms that are economical, it will be required to seek
other sources of long term funding.
WE ARE AFFECTED BY THE ABILITY OF OUR CUSTOMERS TO REPAY THEIR LOANS.
Homestar 21 makes loans to borrowers that it believes are creditworthy
based on its credit guidelines. These customers may experience adverse
employment, financial, or life circumstances that affect their ability to repay
their loans. If customers do not repay their loans, the profitability and cash
flow from the loan portfolio could be adversely affected.
THE MANUFACTURED HOUSING INDUSTRY IS HIGHLY COMPETITIVE AND SOME OF OUR
COMPETITORS HAVE STRONGER BALANCE SHEETS AND CASH FLOW, AS WELL AS GREATER
ACCESS TO CAPITAL, THAN WE DO. THE RELATIVE STRENGTH OF OUR COMPETITORS COULD
RESULT IN DECREASED SALES VOLUME AND EARNINGS FOR US, WHICH COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
The manufactured housing industry is highly competitive. Competition with
other housing manufacturers on both the manufacturing and retail levels is based
primarily on price, product features, reputation for service and
12
quality, retail inventory, merchandising, and the terms and availability of
wholesale and retail customer financing. Growth in manufacturing capacity during
the 1990s increased competition at both the manufacturing and retail levels and
resulted in both regional and national competitors increasing their presence in
the markets in which we compete. Overproduction of manufactured housing in these
regions could lead to greater competition and result in decreased margins, which
could have a material adverse effect on our results of operations. In addition,
manufactured homes compete with new and existing site-built homes, apartments,
townhouses and condominiums. The supply of such housing has increased in recent
years with the increased availability of construction financing, and this
reduces the demand for manufactured homes. Manufactured homes also compete with
resales of homes that have been repossessed by financial institutions as a
result of credit defaults by dealers or customers. Repossession rates for
manufactured homes have increased in recent years and there can be no assurance
that repossession rates will not continue to increase, thereby adversely
affecting our sales volume and profit margins. The manufactured housing
industry, as well as the site-built housing development industry, has
experienced consolidation in recent years, which could result in the emergence
of competitors, including developers of site-built homes that have greater
financial resources than we have. This could adversely affect our business.
OUR MARKET IS THE SOUTHWEST REGION WITH OUR PRIMARY FOCUS IN TEXAS, AND A
DECLINE IN DEMAND IN THAT AREA COULD HAVE A MATERIAL NEGATIVE EFFECT ON SALES.
A disproportionate decrease in general economic conditions in the Southwest
region of the U.S. versus other areas of the country would have a material
adverse effect on our results of operations.
THE LOSS OF OUR EXECUTIVE OFFICERS COULD REDUCE OUR ABILITY TO ACHIEVE OUR
BUSINESS PLAN AND COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND
OPERATING RESULTS.
American Homestar is dependent on the services and performance of our
executive officers, including our President and Chief Executive Officer, Finis
F. Teeter. The loss of the services of one or more of our executive officers
could have a material adverse effect upon the Company's business, financial
condition and results of operations, at least in the short term.
OTHER INFORMATION ABOUT THE COMPANY
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934. During our reorganization, we did not prepare or file
annual or quarterly reports with the Securities and Exchange Commission ("SEC")
but instead filed Monthly Operating Reports with the Bankruptcy Court, as
required by the Bankruptcy Code. We also filed our Monthly Operating Reports,
our confirmed Plan and our audited Fresh-Start balance sheet with the SEC. The
public may read and copy any materials the Company files with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, NW, Washington D.C. 20549, and
may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. The SEC maintains a website, http://www/sec.gov, that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. Our website is
www.americanhomestar.com.
13
ITEM 2. PROPERTIES
At June 27, 2003, we operated two new home manufacturing facilities and one
refurbishment facility in Texas, 31 retail sales centers, three sales offices in
manufactured housing communities and an administrative office. Twenty one of the
retail sales centers and the administrative office are leased under various
noncancellable operating leases with varying monthly payments and varying
expiration dates through March 2007. We own the remaining ten retail sales
centers. Our retail sales centers consist of tracts of land, ranging generally
from 2.5 to 7.0 acres, on which manufactured homes are displayed, each with a
sales office containing approximately 2,000 square feet of office space. Our
retail sales centers are located in three states as follows: Louisiana (1),
Oklahoma (2), and Texas (28), along with three sales offices in manufacturing
housing communities in Texas. We believe that all facilities are adequately
maintained and suitable for their present use.
We own all of our manufacturing facilities (including those classified as
assets held for sale) and substantially all of our manufacturing equipment,
fixtures, furniture and office equipment. The following table sets forth certain
information with respect to the Company's manufacturing facilities:
DATE OPENED OR BUILDING
LOCATION ACQUIRED SQUARE FEET
Active facilities:
Fort Worth, Texas. . . . . . . . . . . . . . June 1985 137,000
Lancaster, Texas . . . . . . . . . . . . . . December 1992 86,600
Burleson, Texas. . . . . . . . . . . . . . . May 1993 94,500
Idle facilities reported as assets held for
sale:
Henderson, North Carolina. . . . . . . . . . September 1996 70,000
Brilliant, Alabama . . . . . . . . . . . . . June 1997 127,500
Lynn, Alabama. . . . . . . . . . . . . . . . June 1997 150,000
Pendleton, Oregon (1). . . . . . . . . . . . September 1996 146,000
(1) Currently leased to a third party
ITEM 3. LEGAL PROCEEDINGS
On the Effective Date of the Plan, most pending claims against the Company
were discharged and an injunction was issued barring any future claims arising
from events that occurred prior to October 3, 2001. In a few cases, litigation
has been reinstated solely for the purpose of determining the amount of a
general unsecured claim against the Company or a claim to be paid by the
Company's insurers. Since the Effective Date, there have been no other pending
legal proceedings, except for normal routine litigation incidental to the
business, which management believes is not material to our business or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Under the terms of the Plan, all equity interests in the Company were
cancelled as of October 3, 2001, the Effective Date, and all holders of
outstanding shares of Company stock, which had previously traded, on the NASDAQ
National Market, under the symbols HSTR and HSTRQ, lost all rights to equity
interests in and to the reorganized Company. Under the Plan, the Company has
the authority to issue 15 million shares of new Series C common stock and is
required to issue 10 million shares of Series C common stock to its general
unsecured creditors. As of September 23, 2003, there were 204 specific record
holders of the Company's Series C common stock, which holders have been issued
6,780,364 shares of Series C common stock. The remaining 3,219,636 shares are
deemed issued and being held in constructive trust for the benefit of
shareholders to be determined in name and amount as the claims process is
completed. The remaining shares of Series C common stock will continue to be
issued on an incremental basis as the Bankruptcy court enters orders allowing
and disallowing claims that have been filed in the Company's bankruptcy case
until all 10 million shares of Series C common stock are issued. We expect the
claims process to be completed by April 2004.
The Company also has the authority to issue 7.5 million shares of Series M
common stock to management, 100 shares of which had been issued as of September
23, 2003.
All shares of the Company's new common stock are restricted as to sale through
April 2004. There have been no sales of Series C or Series M common stock, and
no quotations for such shares have been published on any securities market.
DIVIDEND POLICY
American Homestar has not paid any cash dividends on its common stock since
it became a public reporting company. The Board of Directors intends to retain
any future earnings generated by the Company to support and finance operations
and does not intend to pay cash dividends on our common stock for the
foreseeable future. The payment of cash dividends in the future will be at the
discretion of the Board and will depend upon a number of factors such as the
Company's earnings levels, capital requirements, financial condition and any
other factors deemed relevant by the Board of Directors. The terms of certain
indebtedness of the Company may or may not restrict the Company's ability to pay
dividends or make additional distributions.
SALES OF UNREGISTERED SECURITIES
We have had no sales of unregistered securities during the last three
years.
15
ITEM 6. SELECTED FINANCIAL DATA
The financial information set forth under Statement of Operations Data and
Balance Sheet Data for the fiscal period ended May 1999, the one month ended
June 30, 1999, and the fiscal year ended June 30, 2000, and as of the reporting
periods then ended, was derived from the Consolidated Financial Statements of
the Company (and its subsidiaries), which financial statements have been audited
by KPMG LLP, independent certified public accountants. The financial information
set forth under Statement of Operations Data and Balance Sheet Data for the
fiscal period ended June 29, 2001, three months ended September 29, 2001, nine
months ended June 28, 2002 and fiscal period ended June 27, 2003 have been
audited by Mann Frankfort Stein & Lipp CPAs, L.L.P., independent certified
public accountants. The Consolidated Financial Statements for the fiscal period
June 29, 2001, three month period ended September 29, 2001 and nine month period
ended June 28, 2002 and fiscal period ended June 27, 2003 are included elsewhere
herein. The selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes thereto
included in Item 8 of this Form 10-K (in thousands except per share data).
YEAR ONE MONTH THREE MONTHS NINE MONTHS
ENDED ENDED YEARS ENDED ENDED
----------------------
MAY 31, JUNE 30, JUNE 30, JUNE 29, SEPTEMBER 29,
1999 1999 2000 2001 2001
--------- ---------- ---------- ---------- ---------------
PREDECESSOR CO.
--------------------------------------------------------------
(in thousands, except per share amounts)
STATEMENT OF OPERATIONS DATA:
Revenues:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . $612,086 $ 49,272 $ 532,634 $ 217,375 $ 21,107
Other revenues. . . . . . . . . . . . . . . . . . . . . . . 41,957 3,493 41,402 24,399 5,137
--------- ---------- ---------- ---------- ---------------
Total revenues. . . . . . . . . . . . . . . . . . . . 654,043 52,765 574,036 241,774 26,244
--------- ---------- ---------- ---------- ---------------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . 477,717 40,214 446,378 174,999 16,086
Selling, general and administrative . . . . . . . . . . . . 134,682 12,487 153,769 77,948 10,290
Restructuring charges, goodwill and asset
impairments(1) . . . . . . . . . . . . . . . . . . . . . -- -- 22,097 139,216
--------- ---------- ---------- ---------- ---------------
Total costs and expenses. . . . . . . . . . . . . . . 612,399 52,701 622,244 392,163 26,376
--------- ---------- ---------- ---------- ---------------
Operating income (loss) . . . . . . . . . . . . . . . 41,644 64 (48,208) (150,389) (132)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . (13,845) (1,487) (18,366) (11,231) (214)
Other income (expense) . . . . . . . . . . . . . . . . . . . . 110 19 (566) 813 88
--------- ---------- ---------- ---------- ---------------
Income (loss) before items shown
below. . . . . . . . . . . . . . . . . . . . . . . 27,909 (1,404) (67,140) (160,807) (258)
Reorganization items:
Fresh-Start adjustments . . . . . . . . . . . . . . . . . . -- -- -- -- 18,863
Reorganization costs. . . . . . . . . . . . . . . . . . . . -- -- -- (2,796) (1,433)
--------- ---------- ---------- ---------- ---------------
Income (loss) before items shown
below. . . . . . . . . . . . . . . . . . . . . . . 27,909 (1,404) (67,140) (163,603) 17,172
Income tax expense (benefit) . . . . . . . . . . . . . . . . . 11,472 (462) (20,141) 16,239 20
--------- ---------- ---------- ---------- ---------------
Income (loss) before items shown
below. . . . . . . . . . . . . . . . . . . . . . . 16,437 (942) (46,999) (179,842) 17,152
Earnings (losses) in affiliates. . . . . . . . . . . . . . . . 1,602 49 (350) 492 145
Minority interest in income of consolidated
subsidiaries . . . . . . . . . . . . . . . . . . . . . . . (98) (20) (242) 142 (50)
--------- ---------- ---------- ---------- ---------------
Income (loss) before items shown
below. . . . . . . . . . . . . . . . . . . . . . . 17,941 (913) (47,591) (179,208) 17,247
Extraordinary item, net of income tax benefit(2) . . . . . . . -- -- -- -- 139,310
--------- ---------- ---------- ---------- ---------------
Net income (loss) . . . . . . . . . . . . . . . . . . $ 17,941 $ (913) $ (47,591) $(179,208) $ 156,377
========= ========== ========== ========== ===============
Earnings (loss) per share before extraordinary
item - basic and diluted. . . . . . . . . . . . . . . . . . $ 0.96 $ (0.05) $ (2.59) $ N/A $ N/A
Earnings (loss) per share - basic and diluted. . . . . . . . . $ 0.96 $ (0.05) $ (2.59) $ N/A $ N/A
Weighted average shares outstanding - basic and
diluted . . . . . . . . . . . . . . . . . . . . . . . . . . 18,669 18,586 18,423 N/A N/A
BALANCE SHEET DATA (END OF FISCAL YEAR):
Working capital. . . . . . . . . . . . . . . . . . . . . . . . $ 60,859 $ N/A $ 39,993 $ 27,094 $ 11,797
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . 439,316 N/A 362,233 96,352 76,606
Total borrowings . . . . . . . . . . . . . . . . . . . . . . . 216,845 N/A 208,176 24,462 21,102
Shareholders' equity . . . . . . . . . . . . . . . . . . . . . $135,465 $ N/A $ 92,902 $ (91,327) $ 30,179
NINE MONTHS YEAR
ENDED ENDED
JUNE 28 JUNE 27,
2002 2003
--------- ----------
SUCCESSOR CO.
---------------------
STATEMENT OF OPERATIONS DATA:
Revenues:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . $ 64,234 $ 71,847
Other revenues. . . . . . . . . . . . . . . . . . . . . . . 18,584 20,293
--------- ----------
Total revenues. . . . . . . . . . . . . . . . . . . . 82,818 92,140
--------- ----------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . 52,184 63,878
Selling, general and administrative . . . . . . . . . . . . 28,703 29,566
Restructuring charges, goodwill and asset
impairments(1) . . . . . . . . . . . . . . . . . . . . . -- --
--------- ----------
Total costs and expenses. . . . . . . . . . . . . . . 80,887 93,444
--------- ----------
Operating income (loss) . . . . . . . . . . . . . . . 1,931 (1,304)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . (825) (955)
Other income (expense) . . . . . . . . . . . . . . . . . . . . 245 363
--------- ----------
Income (loss) before items shown
below. . . . . . . . . . . . . . . . . . . . . . . 1,351 (1,896)
Reorganization items:
Fresh-Start adjustments . . . . . . . . . . . . . . . . . . -- --
Reorganization costs. . . . . . . . . . . . . . . . . . . . -- --
--------- ----------
Income (loss) before items shown
below. . . . . . . . . . . . . . . . . . . . . . . 1,351 (1,896)
Income tax expense (benefit) . . . . . . . . . . . . . . . . . 247 282
--------- ----------
Income (loss) before items shown
below. . . . . . . . . . . . . . . . . . . . . . . 1,104 (2,178)
Earnings (losses) in affiliates. . . . . . . . . . . . . . . . 409 606
Minority interest in income of consolidated
subsidiaries . . . . . . . . . . . . . . . . . . . . . . . (249) (242)
--------- ----------
Income (loss) before items shown
below. . . . . . . . . . . . . . . . . . . . . . . 1,264 (1,814)
Extraordinary item, net of income tax benefit(2) . . . . . . . -- --
--------- ----------
Net income (loss) . . . . . . . . . . . . . . . . . . $ 1,264 $ (1,814)
========= ==========
Earnings (loss) per share before extraordinary
item - basic and diluted. . . . . . . . . . . . . . . . . . $ 0.13 $ (0.18)
Earnings (loss) per share - basic and diluted. . . . . . . . . $ 0.13 $ (0.18)
Weighted average shares outstanding - basic and
diluted . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 10,000
BALANCE SHEET DATA (END OF FISCAL YEAR):
Working capital. . . . . . . . . . . . . . . . . . . . . . . . $ 32,134 $ 33,370
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . 92,749 70,935
Total borrowings . . . . . . . . . . . . . . . . . . . . . . . 21,703 7,398
Shareholders' equity . . . . . . . . . . . . . . . . . . . . . $ 49,813 $ 48,905
________________________________
(1) Restructuring charges, goodwill and asset impairments related to the
closing or idling of manufacturing plants and restructuring of the
Company's retail operations in fiscal 2000. Such changes increased the
diluted loss per share by $0.81 for fiscal 2000. Restructuring charges,
goodwill and asset impairments related to the closing or idling of
manufacturing plants and non-core retail operations in fiscal 2001.
(2) Extraordinary gain for forgiveness of debt.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
American Homestar is a regional vertically integrated manufactured housing
company with operations in manufacturing, retailing, home transportation
services, home financing and insurance. Our principal operations are located in
Texas, although we also sell our products in neighboring states. We manufacture
a wide variety of manufactured homes from two of our three manufacturing
facilities. The third manufacturing facility is primarily engaged in
refurbishing manufactured homes obtained through lender repossessions.
Our products are sold through 31 Company-operated retail sales centers in
Texas, Louisiana and Oklahoma, Company-operated sales offices in three
manufactured housing communities in Texas, several developer-operated sales
centers in manufactured housing communities, and several independent dealers. In
addition, we facilitate both chattel and land-home installment financing by
purchasers of manufactured homes from our retail sales centers. We also offer
retail customers a variety of insurance products, including property casualty
insurance, credit life insurance and extended warranty coverage through both
Company-operated retail sales centers and certain independent retailers. We also
offer transportation services to our customers.
REORGANIZATION
On January 11, 2001, American Homestar Corporation and 21 of our
subsidiaries filed separate voluntary petitions for reorganization under Chapter
11 of the United States Bankruptcy Code in the United States Bankruptcy Court
for the Southern District of Texas (the "Bankruptcy Court"). On August 14, 2001,
the Bankruptcy Court confirmed the Third Amended Joint Plan of Reorganization
(the "Plan") of the Company and its subsidiaries. On October 3, 2001 (the
"Effective Date"), all conditions required for the effectiveness of the Plan
were met, and the Plan became effective, and the Company and our subsidiaries
emerged from bankruptcy.
SUMMARY OF PLAN
Under the terms of the Plan, we maintained our ongoing business operations
primarily in Texas, Louisiana and Oklahoma, and continued sales to independent
dealers in New Mexico, Arkansas and Colorado. We continued to use our
manufacturing facilities in North Texas and to operate approximately 40 retail
store operations. Subsequent to our emergence from bankruptcy, we have reduced
the number of retail stores we operate to 31 stores. Moreover, through
affiliated entities that were not subject to the Plan, we continued our
insurance, financial services and transportation lines of business.
Treatment of Equity. Under the terms of the Plan, all equity interests in
the Company were cancelled as of the Effective Date, and all holders of
outstanding shares of Company stock, which had previously traded under the
symbols HSTR and HSTRQ, lost all rights to equity interests in and to the
reorganized Company. Under the Plan, the Company has the authority to issue 15
million shares of new Series C common stock and is required to issue 10 million
shares of Series C common stock to its general unsecured creditors. Pursuant to
the exemption set forth in Section 1145 of the Bankruptcy Code, the Company
issued new shares of Series C common stock to persons holding allowed unsecured
claims in the Company's bankruptcy case and shares of Series M common stock to
management under an incentive program. The Company has issued 10 million shares
of Series C common stock and 100 shares of Series M common stock. As of June
27, 2003, 4,869,250 shares of Series C common stock had been issued to specific
shareholders with allowed claims and 5,130,750 shares were held in constructive
trust for the benefit of shareholders to be determined in name and amount as the
claims process is completed. Since June 27, 2003, we have issued 1,111,114
additional shares of Series C common stock pursuant to the claims process, and
3,219,636 shares of the 10 million remain to be issued. We expect the claims
process to be completed by April 2004. The Company also has the authority to
issue 7.5 million shares of Series M common stock to management, 100 shares of
which had been issued as of June 27, 2003 and 4,999,900 shares underlie options
authorized under the Company's 2001 Management Incentive Program. Options for
4,899,900 shares have been approved and granted at an exercise price of $1.35
per share. These options vest seven years from the date of grant and may vest
earlier (up to 20% per year) if certain annual performance criteria established
by the Board of Directors are met. As of June 27, 2003, options for 969,980
shares of Series M common stock have vested.
17
Treatment of Administrative and Priority Claims (other than tax claims).
The Bankruptcy Code sets forth various types of claims that are entitled to
priority treatment. These priority claims include, among others, the costs of
administration incurred during the bankruptcy case, certain consumer claims and
certain employee claims. Under the terms of the Plan, we paid the priority
claims allowed by the Bankruptcy Code in cash and in full.
Tax Claims. The Bankruptcy Code allows certain tax claims to be paid over a
period of up to 72 months following the date of the assessment of those taxes.
The Plan authorizes the Company and its subsidiaries to pay tax claims over a
period of up to 60 months, with interest.
Unsecured Claims. Under the terms of the Plan, holders of unsecured claims
of $10,000 or less were given varying options, depending upon the entity owing
the unsecured claim. In general, most holders of such claims were entitled to
receive a small payment in cash (typically 10% or 20% of the amount of their
claim). Certain of our affiliates have discontinued or will discontinue doing
business with us under the terms of the Plan. Holders of unsecured claims
against discontinued entities could accept a pro rata distribution once the
liquidation value of the subsidiary is determined. Very few creditors have
elected this option. The typical holder of an allowed unsecured claim of more
than $10,000 will receive shares of our Series C common stock. We will issue the
shares without regard to which of our subsidiaries actually owed the claim.
Miscellaneous Secured Claims. Under the terms of the Plan, we were given
the option to return the collateral for secured claims or to pay secured claims
over an extended period of time, with interest.
Secured Claims by Primary Lender. As part of the Plan, the Company and
several of its subsidiaries entered into a new financing arrangement with our
principal secured lender. The arrangement provided for substantial debt
forgiveness by the secured lender and for the extension of a 36-month revolving
credit facility by the secured lender. The inventory credit line originally
provided for borrowings up to a maximum limit of $38 million, although the
available amount under the loan varied based on various covenants and other
requirements. Maximum borrowings peaked at approximately $21 million. Under the
financing agreement, all net cash proceeds from the sale or lease of the
Company's idle facilities have been deposited into a restricted cash collateral
account, and those funds have been otherwise unavailable to the Company. In June
2003, we amended this inventory financing agreement with the lender to allow for
a pay-down, using approximately $5.7 million held by the lender in the
restricted cash collateral account. Proceeds from the future sale or lease of
idle facilities will also be available for further debt reduction, under certain
circumstances, at the Company's option. As part of this amendment, maximum
borrowings under the inventory credit line were also voluntarily reduced to $12
million. The loan is secured by substantially all of the Company's inventory and
real estate and by certain other assets. At June 27, 2003 the amount
outstanding under this credit facility was approximately $6.8 million.
BASIS OF REPORTING
Upon our emergence from bankruptcy protection in October 2001, we adopted
the provisions of Statement of Position No. 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" ("Fresh-Start Reporting")
as promulgated by the AICPA. Accordingly, all of our assets and liabilities have
been restated to reflect their reorganization value, which approximates their
fair value at the Effective Date. In addition, our accumulated deficit was
eliminated and our capital structure was recast in conformity with the Plan,
and, as of September 29, 2001, we have recorded the effects of the Plan and
Fresh-Start Reporting. Activity between September 29, 2001, the date of the
Consolidated Fresh-Start Balance Sheet, and October 3, 2001, the Effective Date
of the Plan was not material. The adjustment to eliminate our accumulated
deficit totaled $158 million, of which $139 million was forgiveness of debt and
$19 million was from Fresh-Start adjustments.
The reorganization value of our common equity of approximately $30 million,
as of the Effective Date, was determined by an independent valuation and
financial specialist after consideration of several factors and by using various
valuation methods, including appraisals, cash flow multiples, price/earnings
ratios and other relevant industry information. We have allocated our
reorganization value to various asset categories pursuant to Fresh-Start
accounting principles.
18
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND GENERAL
The consolidated financial statements include the accounts of the Company
and our majority-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. Certain amounts previously
reported have been reclassified to conform to the 2003 presentation. We also own
a 50% interest in two financing joint ventures (Homestar 21st, LLC and American
Homestar Mortgage, L.P.) and a 49.5% interest in Humble Springs LTD, a land
development joint venture, which are accounted for under the equity method of
accounting.
Our fiscal year ends on the Friday closest to June 30.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
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 period. Actual results could differ from those estimates.
Significant estimates were made to determine the following amounts
reflected on our Balance Sheets:
- Property Plant and Equipment, according to provisions for
"Fresh-Start" Reporting, were reflected at their estimated fair market
value at September 29, 2001, and are reflected at cost for additions
subsequent to September 29, 2001, less accumulated depreciation for
the period subsequent to September 29, 2001. The determination of
periodic depreciation expense requires an estimate of the remaining
useful lives of each asset.
- Assets Held For Sale are reflected at estimated fair market value.
- Warranty Reserves include an estimate of all future warranty-related
service expenses that will be incurred as to all homes previously sold
that are still within their one-year warranty period. These estimates
are based on average historical warranty expense per home, applied to
the number of homes that are still under warranty.
- Reserve for future repurchase losses reflects management's estimate of
both repurchase frequency and severity of net losses related to
agreements with various financial institutions and other credit
sources to repurchase manufacturing homes sold to independent dealers
in the event of a default by the independent dealer or its obligation
to such credit sources. Such estimates are based on historical
experience.
- Liquidation and Plan Reserve reflects management's estimate of all
costs and expenses to be incurred in administering and satisfying plan
obligations as well as the net cost to complete the liquidation of all
non-core operations.
- Claims Reserve reflects management's estimate of the cash required to
satisfy all remaining priority, tax, administrative and convenience
class claims. This reserve does not include the remaining initial
distribution that is reflected in another liability account, has been
escrowed, and is not subject to estimation.
REVENUE RECOGNITION
Retail sales are recognized once full cash payment is received and the home
has been delivered to the customer.
Manufacturing sales to independent dealers and subdivision developers are
recognized as revenue when the
19
following criteria are met:
- there is a firm retail commitment from the dealer;
- there is a financial commitment (e.g., an approved floor plan source,
cash or cashiers check received in advance or, in the case of certain
subdivision developers, a financial commitment acceptable to
management);
- the home is completely finished;
- the home is invoiced; and
- the home has been shipped.
The Company also maintains used manufactured home inventory owned by
outside parties and consigned to the Company, for which the Company recognizes a
sales commission when received.
Premiums from credit life insurance policies reinsured by our credit life
subsidiary, Lifestar Reinsurance, Ltd. ("Lifestar"), are recognized as revenue
over the life of the policy term. Premiums are ceded to Lifestar on an earned
basis. Lifestar ceased operations in May 2002.
Agency insurance commissions are recognized when received and acknowledged
by the underwriter as due.
Transportation revenues are recognized after the service has been performed
and invoiced to the customer.
INVENTORIES
Newly manufactured homes are valued at the lower of cost or market, using
the specific identification method. Used manufactured homes are valued at
estimated wholesale prices, not in excess of net realizable value. Raw materials
are valued at the lower of cost or market, using the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment were reflected at management's estimate of
fair market value at September 29, 2001, as required by Fresh-Start Reporting.
Subsequent to September 29, 2001, additions are recorded at cost. Depreciation
on property, plant and equipment is recorded using the straight-line method over
the estimated useful lives of the related assets. Leasehold improvements are
amortized using the straight-line method over the useful lives of the
improvements or lease periods, whichever is shorter. We have four manufacturing
plants and several non-core retail sales centers that are not in operation that
are classified as assets held for sale and are reflected at management's
estimate of net realizable value.
We evaluate the recoverability of long-lived assets not held for sale by
measuring the carrying value of the assets against the estimated undiscounted
future cash flows in accordance with SFAS No. 144, which superceded SFAS No.
121. At the time such evaluations indicate that the undiscounted future cash
flows of certain long-lived assets are not sufficient to recover the carrying
value of such assets, we adjust the carrying values of such assets to their
estimated fair values. Estimated fair values are determined using the present
value of estimated future cash flows. In conjunction with the SFAS No. 121
analysis performed in fiscal years 2000 and 2001, we recorded long-term asset
impairments of approximately $4.8 million in fiscal 2000 and approximately $38.8
million in fiscal 2001.
GOODWILL
Goodwill, which represents the excess of purchase price over the fair value
of net assets acquired, was amortized on a straight-line basis over periods
ranging from 10 to 40 years. We assessed the recoverability of goodwill by
determining whether the amortization of the goodwill balance over the remaining
useful life could be recovered through undiscounted future operating cash flows
of the acquired operations. Goodwill was adjusted to zero in connection with the
restatement of assets and liabilities during our reorganization.
In June 2000,we evaluated the recoverability of long-lived assets not held
for sale by measuring the carrying value of the assets against the estimated
undiscounted future cash flows in accordance with SFAS No. 121. At the time such
evaluations indicate that the undiscounted future cash flows of certain
long-lived assets are not sufficient to recover the carrying value of such
assets, the assets are adjusted to their estimated fair values. Estimated fair
20
values are determined using the present value of estimated future cash flows.
In conjunction with the SFAS No. 121 analysis performed in fiscal year 2001, we
recorded goodwill write-off of approximately $63.9 million.
INCOME TAXES
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 such 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 included the enactment date. Because of our recent reorganization,
all deferred tax assets (both short term and long term) have been fully reserved
as their realization is contingent upon future taxable income.
RESERVES FOR FUTURE LOSSES ON CREDIT SALES
The Company makes a current provision for estimated future losses on credit
retail sales where we retain risk in the event of customer nonpayment of
installment sales contracts. Typically, our period of exposure to loss does not
exceed the first two installment payments on an individual contract. The
amounts provided for estimated future losses on credit sales are determined
based on our historical loss experience after giving consideration to current
economic conditions. In assessing current loss experience and economic
conditions, management may adjust the reserve for losses on credit sales related
to prior years' installment sales contracts. All adjustments are recognized
currently.
ACCRUED WARRANTY AND SERVICE COSTS
We make a current provision for future service costs associated with homes
sold and for manufacturing defects for a period of one year from the date of
retail sale of the home. The estimated cost of these items is accrued at the
time of sale and is reflected in cost of sales in the consolidated statements of
operations. For the year ended June 29, 2001, the three months ended September
29, 2001, the nine months ended June 28, 2002, and the year ended June 27, 2003,
warranty and service costs were $ 10.6 million, $0.7 million, $2.0 million, and
$2.0 million respectively.
EARNINGS PER SHARE
Basic earnings per share is based on the weighted average shares
outstanding without any dilutive effects considered. Diluted earnings per share
reflects dilution from all contingently issuable shares from outstanding
options. Options granted under the our 2001 Management Incentive Program are
not reflected in diluted earnings per share as there have been no sales and no
quoted bid and asked prices for our stock. Per share data for periods ended June
29, 2001, and September 29, 2001, have been omitted as the Company was in
bankruptcy during these periods and the amounts do not reflect the current
capital structure.
FINANCIAL INSTRUMENTS
Fair value estimates are made at discrete points in time based on relevant
market information. These estimates may be subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. We believe that the carrying amounts of our current
assets, current liabilities and long-term debt approximate the fair value of
such items.
CASH EQUIVALENTS
Cash equivalents consist of short-term investments with an original
maturity of three months or less, money market accounts and cash in transit from
financial institutions. Cash in transit from financial institutions presents no
risk to the Company regarding collectibility and is typically received within
two business days of month end.
21
CONCENTRATION OF CREDIT RISK
We maintain cash in several bank accounts, which at times exceed federally
insured limits. We monitor the financial condition of the banks where we
maintain accounts and we have experienced no losses associated with these
accounts.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangibles. The statement requires that goodwill not be
amortized but instead be tested at least annually for impairment and expensed
against earnings when the implied fair value of a reporting unit, including
goodwill, is less than its carrying amount. SFAS No. 142 was effective for
fiscal years beginning after December 15, 2001, and its adoption has not had a
material impact on our financial condition or results of operations.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS 143 was effective for financial
statements issued for fiscal years beginning after June 15, 2002, and its
adoption has not had a material impact on our financial condition or results of
operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," as it relates to the accounting for the disposal of a
segment of a business (as previously defined in that Opinion). The provisions of
SFAS 144 were effective for financial statements issued for fiscal years
beginning after December 15, 2001, and its adoption has not had a material
impact on our financial condition or results of operations.
In May 2002, the FASB issued Statement of Financial Accounting Standards
No. 145 ("SFAS 145"), "Rescission of FASB Statements No. 4, 44 and 64, Amendment
of FASB Statement No. 13, and Technical Corrections." This Statement rescinds
FASB Statements No. 4, Reporting Gains and Losses from Extinguishment of Debt,
and an amendment of Statement No. 4 and FASB Statement No. 64, Extinguishments
of Debt Made to Satisfy Sinking-Fund Requirements. This Statement also rescinds
FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers. This
Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. SFAS 145 is effective
for fiscal years beginning after May 15, 2002, and its adoption has not had a
material impact on our financial condition or results of operations.
In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146 ("SFAS 146"), "Accounting for Costs Associated with Exit or Disposal
Activities." This Statement addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies Emerging Issues
Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." SFAS 146 is effective for exit or disposal
activities initiated after December 31, 2002. We do not expect the adoption of
SFAS 146 will have a material effect on our financial condition or results of
operations.
In December 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure," which amends SFAS 123,
"Accounting for Stock-Based Compensation" to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based compensation. In addition, this statement amends the disclosure
requirements of SFAS 123 to require prominent disclosures in both annual and
22
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. We
will continue to account for stock-based compensation using the intrinsic method
as permitted by SFAS 123 and prominently disclose the additional information
required by SFAS 148 in our annual and interim reports.
In January 2003, the FASB issued FASB Interpretation No. (FIN) 46,
Consolidation of Variable Interest Entities. This interpretation provides
guidance on the identification of, and financial reporting for, variable
interest entities. Variable interest entities are entities that lack the
characteristics of a controlling financial interest or lack sufficient equity to
finance its activities without additional subordinated financial support. FIN 46
requires a company to consolidate a variable interest entity if that company is
obligated to absorb the majority of the entity's expected losses or entitled to
receive the majority of the entity's residual returns, or both. FIN 46 also
requires disclosures about variable interest entities that a company is not
required to consolidate but in which it has a significant variable interest. FIN
46 is applicable immediately to variable interest entities created after January
31, 2003. For all variable interest entities created prior to February 1, 2003,
FIN 46 is applicable to periods beginning after June 15, 2003. We do not expect
that the adoption of FIN 46 will have a material effect on our financial
position or results of operation.
RESULTS OF OPERATIONS
The results of operations and cash flows for the three months ended
September 29, 2001, include operations prior to the Company's emergence from
Chapter 11 proceedings and do not take into account the effects of Fresh-Start
Reporting. The results of operations and cash flows for the nine months ended
June 28, 2002, include operations subsequent to the Company's emergence from
Chapter 11 proceedings and reflect the on-going effects of Fresh-Start Reporting
(the Company being referred to herein as "Predecessor Company" for periods prior
to September 29, 2001, and as "Successor Company" for periods subsequent to
September 29, 2001). As a result, the results of operations and cash flows for
the twelve months ended June 27, 2003 for the Successor Company are not
comparable to the results of operations and cash flows for the twelve months
ended June 28, 2002, as the earlier period includes three months of Predecessor
Company operations and cash flows, which do not reflect the effects of
Fresh-Start Reporting, and nine months of Successor Company operations and cash
flows, which do reflect the effects of Fresh-Start Reporting.
In connection with our reorganization, we have significantly downsized our
operations and have focused on our core Southwest market, where the Company is
based and where we have historically had our most favorable overall results. We
currently operate 31 retail sales centers and three sales offices in
manufactured housing communities, along with a marketing presence (displaying
model homes and spec homes without an on-site sales office) in approximately 34
manufactured housing communities. We operate three manufacturing plants, two of
which produce new homes and the third is used to refurbish lender repossessions.
We operate an insurance agency, which sells homeowner's insurance, credit life
insurance and extended warranty coverage to our customers and, from March 1995
to May 2002 operated a reinsurance company, which reinsured the credit life and
extended warranty policies sold, which allowed the Company to participate in
additional homeowner insurance profits in years where losses were lower than
expected. We have a 51% ownership interest in a transport company, which
specializes in the transportation of manufactured homes, modular homes and
offices. In customer finance, we have a 50% interest in a finance company which
specializes in providing chattel and land/home financing to the Company's
customers and a 50% interest in a mortgage brokerage business which allows us to
better control the placement of our traditional mortgage business and to realize
a portion of the net profits related to this business. Management believes that
its vertical integration strategy, deriving multiple profit sources from each
retail sale, will allow the Company to be more successful, over time, than would
otherwise be the case.
Two significant events have, in our opinion, had a dampening effect on new
home sales and revenues since January 2002. The withdrawal of several retail
lenders from the national market has had the effect of tightening credit
standards applied to potential new home buyers and, at least temporarily,
reduced total potential demand for new homes. Some previously qualified new
homebuyers are currently able to purchase lender repossessions but are not
currently eligible for new home financing. In addition, Texas legislation (HB
1869) effective January 1, 2002, required any land/home package to be closed and
financed in a fashion nearly identical to traditional mortgage financing for
site-constructed housing. This legislation led to a much longer and more
complex credit approval and
23
loan closing cycle than existed prior to January 1, 2002. While this change did
not necessarily result in a lower overall demand for manufactured housing in
Texas, it had the effect of lengthening the sales closing and revenue
recognition process from an average of 45-60 days to an average of more than 100
days. As a result, management believed that the Company realized less revenue
during the six months ended June 28, 2002, and the year ended June 27, 2003,
than would have otherwise been the case without lender withdrawal from the
industry and the Texas law change. Effective June 18, 2003, SB 521 amended the
provisions of HB 1869 to allow for chattel financing, at the owner's option, of
a manufactured home that is sited on land owned by the home owner. We believe SB
521 should moderate the negative impact on manufactured home sales in Texas
caused by HB 1869. If the lending environment remains stable, management
believes that sales and revenues will gradually improve over current levels as
the sales-in-process mature toward the longer closing and completion cycle and
as our retail sales team adjusts to these new lender and industry dynamics. We
believe that most of our competition in our core market region experienced
similar market pressures and has reduced both retail and manufacturing capacity.
We also believe that the Company is postured to take advantage of these changes
because we are reorganized and no longer distracted by the same relative
leverage positions and operational challenges as much of our competition. While
we believe that market share gains will be gradual but steady, there is no
assurance that these gains will materialize.
The following table summarizes certain key sales statistics for the Company
for the periods indicated:
YEAR THREE MONTHS NINE MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 29, SEPTEMBER 29, JUNE 28, JUNE 27,
2001 2001 2002 2003
---------- --------------- ------------- ----------
Predecessor Co. Successor Co.
--------------------------- -------------------------
Company-manufactured new homes sold at retail. . . . . . . . 2,447 373 994 999
Total new homes sold at retail through retail sales centers. 2,499 373 1,001 1,010
Internalization rate (1) . . . . . . . . . . . . . . . . . . 98% 100% 99% 99%
Previously-owned homes sold at retail. . . . . . . . . . . . 964 149 555 564
Average retail selling price - new homes (HUD code). . . . . $ 54,823 $ 51,403 $ 53,584 $ 55,230
Company-operated retail sales centers and community sales
offices at end of period. . . . . . . . . . . . . . . . . 41 41 41 34
Total manufacturing shipments. . . . . . . . . . . . . . . . 3,656 343 1,176 1,248
Manufacturing shipments to independent retail sales centers
and developers. . . . . . . . . . . . . . . . . . . . . . 1,832 51 162 330
_______________________________
(1) The proportion of new homes manufactured by the Company that are sold by
Company-operated retail sales centers.
The following table summarizes our historical operating results, expressed
as a percentage of total revenues, for the periods indicated:
YEAR THREE MONTHS NINE MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 29, SEPTEMBER 29, JUNE 28, JUNE 27,
2001 2001 2002 2003
--------- -------------- ------------ ---------
Predecessor Co. Successor Co.
------------------------- -----------------------
Total revenues . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Gross profit . . . . . . . . . . . . . . . . 27.6% 38.7% 37.0% 30.7%
Selling, general and administrative expenses
before acquisition costs . . . . . . . 32.2% 39.2% 34.7% 32.1%
Restructuring costs. . . . . . . . . . . . . 57.6% -- -- --
Operating income . . . . . . . . . . . . . . (62.2%) (0.5%) 2.3% (1.4)%
Income before income taxes and extraordinary
item . . . . . . . . . . . . . . . . . (67.7%) (65.4%) 1.6% (2.1)%
Income before extraordinary item . . . . . . (74.1%) (65.7%) 1.5% (2.0)%
Net income . . . . . . . . . . . . . . . . . (74.1%) 595.5% 1.5% (2.0)%
24
Although the adoption of Fresh-Start Reporting significantly affected
comparability, certain Pre- and Post-reorganization period income and expense
items remain comparable and are addressed in the following analysis of results
of operations for the periods indicated.
NINE MONTHS ENDED JUNE 27, 2003 COMPARED TO NINE MONTHS ENDED JUNE 28, 2002
Net Sales. Net sales of manufactured homes were $53.3 million for the nine
months ended June 27, 2003, compared to $64.2 million for the nine months ended
June 28, 2002. The 17% decline in net sales was principally as a result of a
decline in retail sales, generally consistent with the overall decline in new
home sales in Texas and was partially offset by an increase in manufacturing
wholesale shipments to independent dealers and developers and sales of special
purchase homes by Roadmasters.
Retail sales declined $15.3 million (or 26.3%). This decline was partially
attributable to the closing of 10 retail centers, however, new home same store
sales in the Company's core operations also declined 17% from an average of 24
new home sales per store for the nine months ended June 28, 2002, to an average
of 20 new home sales per store for the nine months ended June 27, 2003. We
believe that Texas law (HB 1869) and the exit of major lenders from the industry
are major factors in the decline of new home same store and average sales in the
nine months ended June 27, 2003.
Manufacturing division sales to independent dealers and developers were
$9.6 million in the nine months period ended June 27, 2003, compared to $6.4
million in the nine month period ended June 28, 2002. For the nine months ended
June 28, 2002, substantially all sales were to independent dealers. For the nine
months ended June 27, 2003, approximately 78% of manufacturing division
shipments were to subdivision developers. We believe such sales to independent
dealers and especially to subdivision developers will increase gradually over
time, aided by reductions of competitor capacity in our regional market area and
our recent emphasis on subdivision developer relationships and sales.
Roadmasters, our transportation division, recorded manufactured homes sales
of $1.0 million for the nine month period ended June 27, 2003. There were no
such sales in the nine months ended June 28, 2002. These sales resulted from a
bargain purchase of distressed manufactured home inventory and the nearly
concurrent sale of the inventory to an existing Roadmasters' customer.
Other Revenues. Other revenues were $13.4 million for the nine months ended
June 27, 2003, compared to $18.6 million for the nine months ended June 28,
2002. Insurance-related revenues in the Company's agency and reinsurance
operations declined approximately $4.0 million (or 80%) as a result of Lifestar
Reinsurance Ltd. ("Lifestar"), which had contributed approximately $3.8 million
in revenues for the nine months ended June 28, 2002, but ceased operations in
May 2002. Transportation revenues also decreased approximately $1.0 million.
Total Revenues. Total revenues, the individual components of which are
discussed above, were $66.8 million in the nine months ended June 27, 2003,
which is a decline of $16 million (or 19%) when compared to the nine months
ended June 28, 2002.
Cost of Sales. Cost of sales was $46.3 million (or 69.4% of revenues) for
the nine months ended June 27, 2003, compared to $52.2 million (or 63% of
revenues) for the nine months ended June 28, 2002. The 6% increase as a percent
of revenues in cost of sales was partially attributable to Lifestar, which had
operations in the prior year period, but ceased activity in May 2002. Excluding
Lifestar revenues for the nine months ended June 28, 2002, would have resulted
in a cost of sales of 66% versus the 63% reported for said period. The remaining
3% increase in cost of sales was the result of an increase in retail cost of
sales partially offset by lower cost of sales in the Company's manufacturing
operation.
Cost of sales for homes sold at retail, expressed as a percentage of retail
revenues, increased 2.3% for the nine months ended June 27, 2003, compared to
the nine months ended June 28, 2002. Cost of sales in the nine months ended June
28, 2002, were lower as a result of a higher proportionate sales of discounted
inventory (both new and used), which we were was able to purchase on the open
market as well as from its secured lender as a part of our
25
reorganization.
Cost of sales for homes sold to independent dealers and subdivision
developers, expressed as a percentage of manufacturing revenues, decreased 0.5%
in the nine months ended June 27, 2003, compared to the nine months ended June
28, 2002, primarily as a result of lower material costs.
Cost of sales for our transportation operations, expressed as a percentage
of transportation revenues, were approximately the same for the nine months
ended June 27, 2003, and June 28, 2003.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $21.6 million (or 32% of revenues) in the nine
months ended June 27, 2003, compared to $28.7 million (or 35% of revenues) in
the nine months ended June 28, 2002. The decrease is related to costs associated
with Lifestar, which ceased activities in May 2002, and to reduced variable
expenses as a result of lower retail sales and to reduced fixed expenses through
the consolidation and reduction of under-performing retail sales centers.
Interest Expense. Interest expense was $0.7 million for the nine months
ended June 27, 2003, and $0.8 for the nine months ended June 28, 2002.
Income Taxes. Income tax expense was $0.1 million (on pretax loss of $1.6
million) for the nine months ended June 27, 2003, compared to $0.2 million (on a
pretax income of $1.4 million) for the nine months ended June 28, 2002. Tax
expense in both periods relates to taxes attributable to our transportation
operation, which files tax returns separately from our consolidated return.
Earnings in affiliates. Our 50% share in the after-tax earnings of Homestar
21, LLC and American Homestar Mortgage, L.P. were $0.4 million and $0.1 million,
respectively, for the nine months ended June 27, 2003, compared to $0.4 million
for the nine months ended June 28, 2002, all generated by Homestar 21, as
American Homestar Mortgage did not begin operations until November 2002.
Minority Interests. We own 51% of our transportation operations and
therefore consolidate (or include 100% of) the transportation company's results
in our financial statements. Because we only benefit from 51% of the income, the
remaining 49% is shown as a deduction on our consolidated income statement. This
deduction was $0.1 for the nine months ended June 27, 2003, compared to $0.2
million for the nine months ended June 28, 2002.
YEAR ENDED JUNE 27, 2003 COMPARED TO YEAR ENDED JUNE 28, 2002
Net Sales. Net sales of manufactured homes were $71.8 million for the year
ended June 27, 2003, compared to $85.3 million for the year ended June 28, 2002.
The 16% decline in net sales was principally the result of a decline in retail
sales, generally consistent with the overall decline in new home sales in Texas.
The decline in retail sales was partially offset by an increase in manufacturing
wholesale shipments to independent dealers and developers and sales of special
purchase homes by Roadmasters.
Retail sales declined $17.8 million (or 23%). This decline was partially
attributable to the closing of 10 underperforming retail centers during the
year, however, new home same store sales in our core operations also declined
22% from an average of 36 new home sales per store for the year ended June 28,
2002, to an average of 28 new home sales per store for the year ended June 27,
2003. We believe that Texas law (HB 1869) and the exit of major lenders from the
industry are major factors in the decline of new home same store and average
sales in the year ended June 27, 2003.
Manufacturing division sales to independent dealers and developers were
$11.6 million for the year ended June 27, 2003, compared to $8.4 million for the
year ended June 28, 2002. For the year June 28, 2002, substantially all sales
were to independent dealers. For the year ended June 27, 2003, approximately 77%
of manufacturing division sales were to subdivision developers. We believe such
sales to independent dealers and especially to subdivision developers will
increase gradually over time, aided by reductions of competitor capacity in our
regional market area and our recent emphasis on subdivision developer
relationships and sales.
26
Roadmasters, the Company's transportation division, recorded manufactured
homes sales of $1.0 million for the year ended June 27, 2003. There were no such
sales in the year ended June 28, 2002. These sales resulted from a bargain
purchase of distressed manufactured home inventory and the nearly concurrent
sale of the inventory to an existing Roadmasters' customer.
Other Revenues. Other revenues were $20.3 million for the year ended June
27, 2003, compared to $23.7 million for the year ended June 28, 2002.
Insurance-related revenues in our agency and reinsurance operations declined
approximately $6 million (or 70%) as a result of Lifestar Reinsurance Ltd.
("Lifestar"), which contributed approximately $5.8 million in revenues for the
year ended June 28, 2002, but which ceased operations in May 2002. The decline
in insurance revenues was partially offset by a $2.5 million (or 18%) increase
in transportation revenues. Our transportation group expanded its operations to
include commercial transportation business (such as temporary classrooms and
construction offices) and ancillary services (such as on-site installation).
Total Revenues. Total revenues, the individual components of which are
discussed above, were $92.1 million in the year ended June 27, 2003, which is a
decline of $16.9 million (or 16%) when compared to the prior year.
Cost of Sales. Cost of sales was $63.9 million (or 69% of revenues) for the
year ended June 27, 2003, compared to $68.3 million (or 63% of revenues) for the
year ended June 28, 2002. The 6% increase (as a percent of revenues) in cost of
sales was partially attributable to Lifestar, which had operations in the prior
year period, but which ceased activity in May 2002. Excluding Lifestar revenues
for the twelve months ended June 28, 2002, would have resulted in a cost of
sales of 66% versus the 63% reported for said period. The remaining 3% increase
in cost of sales was the result of an increase in retail cost of sales, which
increase was partially offset by lower cost of sales in our manufacturing
operation.
Cost of sales for homes sold at retail (expressed as a percentage of retail
revenues) increased 2% for the year ended June 27, 2003, compared to the year
ended June 28, 2002. Cost of sales in the year ended June 28, 2002, were lower
as a result of a higher proportionate sales of discounted inventory (both new
and used), which we were able to purchase on the open market as well as from our
secured lender as a part of our reorganization.
Cost of sales for homes sold to independent dealers and subdivision
developers (expressed as a percentage of manufacturing revenues) decreased 1.3%
in the year ended June 27, 2003, compared to the year ended June 28, 2002,
primarily as a result of lower material costs in the current period.
Cost of sales for our transportation operations (expressed as a percentage
of transportation revenues) were unchanged in the year ended June 27, 2003, as
compared to the prior year period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $29.6 million (or 32% of revenues) for the year
ended June 27, 2003, compared to $39.0 million (or 36% of revenues) for the year
ended June 28, 2002. The decrease is related to costs associated with Lifestar,
which ceased activities in May 2002, and to reduced variable selling expenses as
a result of lower retail sales and to reduced fixed expenses through the
consolidation and reduction of under-performing retail sales centers.
Interest Expense. Interest expense was $1.0 million for the year ended June
27, 2003, compared to $1.0 million for the year ended June 28, 2002.
Reorganization Costs. In connection with our Chapter 11 filing,
reorganization costs of $1.4 million were incurred during the three months ended
September 29, 2001. These costs related primarily to professional fees and other
expenditures directly related to the Chapter 11 proceedings. There were no
reorganization costs for the nine month period ended June 28, 2002, or in the
year ended June 27, 2003.
Income Taxes. Income tax expense was $0.3 million (on pretax loss of $1.9
million) for the year ended June 27, 2003, compared to $0.3 million (on a pretax
income of $18.5 million) for the year ended June 28, 2002. Tax expense in both
periods relates to taxes attributable to our transportation operation, which
files tax returns separately from our consolidated return.
27
Earnings in affiliates. Our 50% share in the after-tax earnings of Homestar
21, LLC and American Homestar Mortgage, L.P. were $0.5 million and $0.1 million,
respectively, for the year ended June 27, 2003, compared to $0.6 million for the
year ended June 28, 2002, all generated by Homestar 21, as American Homestar
Mortgage did not begin operations until November 2002.
Minority Interests. We own 51% of our transportation operations and
therefore consolidate (or include 100% of) the transportation company's results
in our financial statements. Because we only benefit from 51% of the income, the
remaining 49% is shown as a deduction on our consolidated income statement. This
deduction was $0.2 million for the year ended June 27, 2003, compared to $0.3
million for the year ended June 28, 2002. The decreased deduction for minority
interests resulted from decreased profits in the current period as compared to
the prior year period in our transportation operations.
NINE MONTHS ENDED JUNE 28, 2002 COMPARED TO NINE MONTHS ENDED JUNE 29, 2001
Net Sales. Net sales of manufactured homes were $64.2 million for the nine
months ended June 28, 2002, compared to $102.9 million for the nine months ended
June 29, 2001. The 38% decline in sales was attributable to the following:
Retail sales declined $14.1 million (or 15% in units and 20% in dollars).
New home same store sales in our core operations also declined 14% from an
average of 28 new home sales per store for the nine months ended June 29, 2001,
to an average of 24 new home sales per store for the nine months ended June 28,
2002. Management believes that the Texas law changes in financing brought about
by Texas HB 1869 and the exit of three retail lenders to the industry were major
factors in the decline of new home same store and average sales in the nine
months ended June 28, 2002. The remainder of the decline in new home sales is
attributable to our reorganization and downsizing, which resulted in fewer
average Company stores in the current period than in the comparable period.
Manufacturing division sales to independent dealers were $6.4 million in
the nine months ended June 28, 2002, compared to $31.0 million in the nine
months ended June 29, 2001, a decline of 79%. This significant decline was the
result of two principal factors related to our reorganization. One factor was a
reduction in average number of new home manufacturing facilities in operation
(two in the nine months ended June 28, 2002, compared to seven in the nine
months ended June 29, 2001). The other factor was a reduction in the number of
independent dealers purchasing our products. There were very few sales to
independent dealers during our reorganization (from January 2001 through October
2001). Since we emerged from reorganization in October 2001, we have
re-established relationships with industry floor plan lenders, and sales to
independent dealers and subdivision developers have grown slowly.
Other Revenues. Other revenues were $18.6 million for the nine months ended
June 28, 2002, compared to $18.6 million for the nine months ended June 29,
2001. Insurance-related revenues in our agency and reinsurance operations
declined approximately $6.7 million (or 51%) primarily due to the decline in
retail sales and continuing lender restrictions as to the amounts of insurance
they will finance on each home sale. The decline in insurance revenues was
offset by a $6.7 million (or 123%) increase in transportation revenues. During
the nine months ended June 28, 2002, our transportation group expanded their
operations to include commercial transportation business (such as temporary
classrooms and construction offices) and ancillary services (such as on-site
installation).
Cost of Sales. Cost of sales was $52.2 million (or 63% of revenues) for the
nine months ended June 28, 2002, compared to $86.2 million (or 71% of revenues)
for the nine months ended June 29, 2001. The 40% decline in dollar amount of
cost of sales is largely attributable to the 32% decline in total revenues.
Cost of sales (expressed as a percentage of revenues) in our retail
division declined nearly 5% for the nine months ended June 28, 2002. The most
significant factor in the decline was our exit from all non-core markets by
mid-fiscal year 2001. Margins in the non-core markets were substantially lower
than in our core market area. Approximately 14% of total retail sales during the
nine months ended June 29, 2001, were from non-core markets, while no non-core
sales are reflected for the nine months ended June 28, 2002. The second factor
in the decline was higher proportionate sales of discounted inventory (both new
and used), which we were able to purchase on the open market, as well as from
our secured lender as part of our reorganization.
28
Cost of sales (expressed as a percentage of revenues) in our manufacturing
division declined nearly 8% in the nine months ended June 28, 2002. This decline
was primarily attributable to greater manufacturing efficiencies and the
restoration of raw material purchase terms and discounts in the nine months
ended June 28, 2002. Terms, discounts and efficiencies were negatively affected
beginning in mid-fiscal 2001, while we were undergoing reorganization.
Cost of sales (expressed as a percentage of revenues) were largely
unchanged in our transportation operations in the nine months ended June 28,
2002.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $28.7 million (or 35% of revenues) in the nine
months ended June 28, 2002, compared to $43.2 million (or 36% of revenues) in
the nine months ended June 29, 2001. These expenses declined principally as the
result of a decline in revenues. The less than proportionate decline in SG&A
expenses between the periods is due to the fact that fixed costs were not
reduced at the same short-term rate as the decline in revenues.
Restructuring Changes. There were no restructuring changes in the last nine
months of fiscal 2002 compared to $138.7 million in the last nine months of
fiscal 2001. These costs related to asset revaluations (goodwill write-offs and
adjustment of carrying value to other assets to net realizable value), as well
as costs associated with idling and closing manufacturing facilities and
non-core retail centers.
Interest Expense. Interest expense was $0.8 million for the nine months
ended June 28, 2002, compared to $6.2 million for the nine months ended June 29,
2001. Lower interest expense in the current period was the result of
substantially lower average debt levels in the nine months ended June 28, 2002,
than in for the nine months ended June 28, 2002, due to our reorganization and
attendant debt conversion to equity, as well as slightly lower prevailing and
average interest rates.
Reorganization Costs. In connection with our Chapter 11 filing,
reorganization costs of $2.8 million were incurred for the nine months ended
June 29, 2001. These costs related primarily to professional fees and similar
type expenditures directly related to the Chapter 11 proceedings. No such costs
were incurred in the nine months ended June 28, 2002.
Income Taxes. Income tax expense was $0.2 million (on pretax income of $1.4
million) for the nine months ended June 28, 2002, compared to $16.0 million (on
a pretax loss of $154.8 million) for the nine months ended June 29, 2001. Tax
expense in the current period relates to taxes attributable to our
transportation and reinsurance operations that file returns separately from our
consolidated return. The tax expense for the nine months ended June 29, 2001,
consists primarily of a valuation allowance to fully reserve the deferred tax
assets arising in prior years. The remainder of the tax expense for the nine
months ended June 29, 2001, relates to our transportation and reinsurance
operations as described above.
Earnings in affiliates. Our 50% share in the after-tax earnings of Homestar
21, LLC were $0.4 million for the nine months ended June 28, 2002, compared to
$0.7 million for the nine months ended June 29, 2001. The reduction in income
was primarily the result of fewer loan originations from diminished retail
volume.
Minority Interests. We own 51% of our transportation operations and
therefore consolidate (or include 100% of) the transportation company's results
in our financial statements. Because we only benefit from 51% of the income, the
remaining 49% is shown as a deduction on our consolidated income statement. This
deduction was $0.2 million for the nine months ended June 28, 2002, compared to
a negative deduction (add-back) of $0.2 million for the nine months ended June
29, 2001. The negative deduction for the nine months ended June 29, 2001, arose
as a result of a loss in the transportation company, which was restored to
profitability in for the nine months ended June 28, 2002.
YEAR ENDED JUNE 28, 2002 COMPARED TO JUNE 29, 2001
Net Sales. Net sales of manufactured homes were $85.3 million for the year
ended June 28, 2002, compared to
29
$217.4 million for the year ended June 29, 2001. The 61% decline in sales was
primarily attributable to our reorganization and downsizing including a
significant reduction in the average number of Company sales centers and
manufacturing facilities.
Retail sales declined $63.5 million (or 40% in units and 45% in dollars)
due primarily to a proportionate reduction in the average number of retail
stores operating for the year ended June 28, 2002, compared to the year ended
June 29, 2001. Same store sales of new homes in our core operations also
declined 19% from an average of 42 new home sales per store in the year ended
June 29, 2001, to an average of 34 new home sales per store in the year ended
June 28, 2002. Management believes that the Texas law changes in financing
brought about by Texas HB 1869, beginning in January 2002, as well as the exit
of three major retail lenders to the industry, were significant factors in our
same store sales decline.
Manufacturing division sales to independent dealers were $8.4 million for
the year ended June 28, 2002, compared to $76.9 million for the year ended June
29, 2001, a decline of 89%. This significant decline was the result of two
principal factors related to our reorganization. One factor was the reduction in
average number of manufacturing facilities in operation (two for the year ended
June 28, 2002, compared to seven for the year ended June 29, 2001). The other
factor was a reduction in the number of independent dealers purchasing our
products. There were very few sales to independent dealers during our
reorganization (from January 2001 through October 2001). Since we emerged from
reorganization in October 2001, we have re-established relationships with
industry floor plan lenders and sales to independent dealers and subdivision
developers have grown slowly.
Other Revenues. Other revenues were $23.7 million for the year ended June
28, 2002, compared to $24.4 million for the year ended June 29, 2001.
Insurance-related revenues in our agency and reinsurance operations declined
approximately $7.3 million (or 45%) primarily due to the similar proportionate
decline in retail sales and continuing lender restrictions as to the amounts of
insurance they will finance on each home sale. The decline in insurance revenues
was largely offset by a $6.7 million (or 86%) increase in transportation
revenues. During for the year ended June 28, 2002, our transportation group
expanded their operations to include commercial transportation business (such as
temporary classrooms and construction offices) and ancillary services (such as
on-site installation).
Cost of Sales. Cost of sales was $68.3 million (or 63% of revenues) for the
year ended June 28, 2002, compared to $175.0 million (or 72% of revenues) for
the year ended June 29, 2001. The 61% decline in dollar amount of cost of sales
is largely attributable to the 55% decline in total revenues. The improvement
in cost of sales (expressed as a percentage of revenues) is due to the following
factors:
Cost of sales (expressed as a percentage of revenues) in our retail
division declined approximately 4% primarily as a result of our exit from all
non-core markets (especially in the Carolinas) where lower margins prevailed.
This non-core business represented 14% of total retail sales for the year ended
June 29, 2001, while retail sales for the year ended June 28, 2002, were all
from our core market areas. Another factor was higher proportionate sales of
discounted inventory (both new and used), which we were able to purchase on the
open market, as well as from our secured lender as part of our reorganization.
Cost of sales (expressed as a percentage of revenues) in our manufacturing
division also declined more than 3%. This decline was primarily attributable to
greater manufacturing labor and material efficiencies and the restoration of raw
material purchase terms and discounts during the year ended June 28, 2002.
Terms, discounts and efficiencies were dramatically affected in the year ended
June 29, 2001, as the result of our reorganization. We also implemented a
general price increase in February 2002, our first price increase since January
2001.
Cost of sales (expressed as a percentage of revenues) were largely
unchanged in the Company's transportation and insurance agency operations and
were down slightly in our reinsurance operations, principally as the result of
slightly lower claims for the year ended June 28, 2002.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $39.0 million (or 36% of revenues) for the year
ended June 28, 2002, compared to $77.9 million (or 32% of revenues) for the year
ended June 29, 2001. These expenses declined principally as the result of the
decline in revenues. During our reorganization, a substantial number of sales
centers and manufacturing operations were closed or sold to others,
30
giving rise to substantial reductions in fixed operating costs such as wages,
benefits, rents, utilities and property taxes.
Restructuring Charges. There were no restructuring charges for the year
ended June 28, 2002, compared to $139.2 million for the year ended June 29,
2001. These costs related to asset revaluations (goodwill write offs and
adjustment of carrying value of other assets to net realizable value) as well as
costs associated with idling and closing manufacturing facilities and non-core
retail centers.
Interest Expense. Interest expense was $1.0 million for the year ended June
28, 2002, compared to $11.2 million for the year ended June 29, 2001. As the
result of our reorganization, interest expense on a substantial amount of our
debt ceased in mid-fiscal 2001. Lower interest expense for the year ended June
28, 2002, was the result of substantially lower average debt levels ($80.5
million in fiscal 2002, as compared to $173.8 million in fiscal 2001) and lower
prevailing and average interest rates for the year ended June 28, 2002, as
compared to the year ended June 29, 2001.
Reorganization Costs. In connection with our Chapter 11 filing,
reorganization and impairment costs of $2.8 million and $1.4 million were
incurred during the years ended June 29, 2001 and June 28, 2002, respectively.
These costs related primarily to professional fees and similar type expenditures
directly related to the Chapter 11 proceedings.
Income Taxes. Income tax expense for the year ended June 28, 2002, was
$0.3 million on pretax loss (before Fresh-Start adjustments) of $0.3 million
compared to tax expense of $16.2 million on pretax losses of $164 million for
the year ended June 29, 2001. The tax expense in the current period is
attributable to our transportation and reinsurance operations whose tax returns
are not included in our consolidated tax returns. The most significant source of
the 2001 tax expense was the provision of a full ($15.8 million) valuation
allowance against our deferred tax assets that arose in prior periods. The
remainder of the tax expense for the year ended June 29, 2001 was attributable
to our transportation and reinsurance operations described above.
Earnings in Affiliates. Our 50% share in the after-tax earnings of Homestar
21, LLC was $0.6 million for the year ended June 28, 2002, compared to $0.5
million for the year ended June 29, 2001.
Minority Interests. We own 51% of our transportation operations and
therefore consolidate (or include 100% of) the transportation company's results
in our financial statements. Because we only benefit from 51% of the income, the
remaining 49% is shown as a deduction on our consolidated income statement. This
deduction was $0.3 million for the year ended June 28, 2002, compared to a
negative deduction (add-back) of $0.1 million for the year ended June 29, 2001.
The negative deduction for the year ended June 29, 2001, arose as a result of a
loss in the transportation company, which was restored to profitability for the
year ended June 28, 2002.
LIQUIDITY AND CAPITAL RESOURCES
At June 27, 2003, we had operating cash and cash equivalents of $14.9
million (cash - reserved for claims of $4.3 million, and restricted cash of $0.6
million). The reserved cash balance was for payment of an initial distribution
to shareholders and management's estimate of cash required to pay remaining
claims under the Plan. The restricted cash represents $0.6 million held in a
cash collateral account, which secures the Company's floor plan through
Associates Housing Financial LLC ("Associates").
During the year ended June 27, 2003, we used $9.7 million in cash for
operating activities. Of the $9.7 million, $1.8 million was used to fund
operating losses, $3 million was invested in inventory, $2.5 million was used to
reduce general liabilities, and $2.4 million was used to pay various plan
obligations stemming from our reorganization in 2001. The inventory investment
of $3 million relates to the closing of 11 under-performing retail centers
during the year. Management elected to move the inventory from those retail
centers directly to various manufactured housing subdivisions in and around our
major metropolitan market areas and to make the inventory ready for sale. That
initiative required us to invest in the installation and various site
improvements before a sale actually occurred; however, it also allows us to
avoid the unnecessary cost of movement to another retail center and then a
second movement to a homesite. This initiative also provided us with a wide
selection of ready-for-sale
31
homes to augment the display models on our retail centers. The actual number of
new homes in inventory declined by 50 homes during the year; however, our
investment in inventory increased, at least temporarily, until we sell the
excess inventory to homebuyers.
During fiscal 2003, we also used cash to make substantial debt reductions.
Our inventory-related (floor plan) debt declined $13.9 million during the year
and other debt (principally real estate-related) was reduced by $0.4 million. Of
the $13.9 million used to reduce our floorplan debt, $5.7 million was withdrawn
from a restricted cash collateral account, otherwise unavailable to the Company,
and the balance of $8.2 million came from unrestricted operating cash.
We generated $1.1 million from investing activities, principally from the
sale of idle assets we planned to sell as part of our reorganization.
Under the floor plan credit facility with Associates, our inventory credit
line originally provided for borrowings up to a maximum limit of $38 million,
although the available amount under the facility varied based on various
covenants and other requirements. Maximum borrowings peaked at approximately $21
million. In June 2003, we amended this inventory financing agreement with the
lender to allow for a pay-down, using approximately $5.7 million held by the
lender in a restricted cash collateral account. Under the financing agreement,
all net cash proceeds from the sale or lease of the Company's idle facilities
have been deposited into the cash collateral account and those funds have been
otherwise unavailable to the Company. At June 27, 2003, management estimated the
fair market value of the remaining idle facilities to be approximately $3.4
million. The Company has reported these assets as "Assets held for sale" and is
actively seeking to sell or lease these properties. Net cash proceeds, if any,
resulting from the sale or lease of these properties will be deposited in the
restricted cash collateral account and will therefore be available for future
debt reduction at the Company's option. As part of this amendment, maximum
borrowings under the inventory credit line were also voluntarily reduced to $12
million. The loan is secured by substantially all of the Company's inventory and
real estate and by certain other assets. The line is contractually committed
until October 2, 2004. The balance outstanding at June 27, 2003 was
approximately $6.8 million. Subsequent to year-end, the Company made an
additional pay-down from the cash collateral account and plans to make others as
cash collateral is available. The line carries an annual interest rate of prime
plus 1%. Management believes that this floor plan credit facility is sufficient
to meet the inventory financing needs of the Company until October 2004.
Management is exploring alternatives to this line of credit and plans on
securing new lines of credit before October 2004.
Under the Plan, the Company was required to make an initial distribution to
its new shareholders of approximately $5.3 million. Distributions of
approximately $2.1 million and $0.5 million were made in April 2002 and December
2002. At June 27, 2003 approximately $2.8 million in escrow for the balance of
the distribution. In July 2003, a third distribution of approximately $1.0
million was made.
In accordance with customary business practice in the manufactured housing
industry, we have entered into repurchase agreements with various financial
institutions and other credit sources pursuant to which we have agreed, under
certain circumstances, to repurchase manufactured homes sold to independent
dealers in the event of a default by such independent dealer on their obligation
to such credit sources. Under the terms of such repurchase agreements, we agree
to repurchase manufactured homes at declining prices over the periods of the
agreements (which generally range from 18 to 24 months). While repurchase
activity is very sporadic and cyclical, the Company provides for anticipated
repurchase losses. At June 27, 2003, the Company was at risk to repurchase
approximately $1.2 million of manufactured homes and has provided for estimated
net repurchase losses of approximately $0.2 million.
We believe that our current cash position and expected cash flow from
operations and the liquidation of excess inventory, along with our floor plan
facility, will be sufficient to support our cash and working capital
requirements for the foreseeable future.
OFF-BALANCE SHEET ARRANGEMENTS
We have not participated in any off-balance sheet arrangements.
32
INFLATION AND SEASONALITY
Inflation in recent years has been modest and has primarily affected our
manufacturing costs in the areas of labor, manufacturing overhead, raw materials
other than lumber and certain petroleum-based materials. The price of lumber
and certain petroleum-based materials are affected more by the imbalances
between supply and demand than by inflation. Historically, we believe we have
been able to minimize the effects of inflation by increasing the selling prices
of our products, improving our manufacturing efficiency and increasing our
employee productivity. In addition, our business is seasonal, with weakest
demand typically from mid-November through February and the strongest demand
typically from March through mid-November. Over the history of the Company's
operations, management has not observed any correlation between interest rate
fluctuations and increases or decreases in sales based solely on such
fluctuations.
CONTRACTUAL OBLIGATIONS
The following table summarizes the Company's long-term debt and operating
leases at June 27, 2003:
Payment Due by Period
----------------------------------------------------
Less than After
Contractual Obligations Total 1 Year 2-3 Years 4-5 Years 5 years
------ ---------- ---------- ---------- --------
Long-term debt. . . . . . . $ 572 $ 70 $ 161 $ 177 $ 164
Operating leases. . . . . . 1,931 1,358 511 62 --
------ ---------- ---------- ---------- --------
Total contractual obligations $2,503 $ 1,428 $ 672 $ 239 $ 164
====== ========== ========== ========== ========
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to market risks related to fluctuations in interest rates on
our variable rate debt, which consists of our liability for floor plan of
manufactured housing retail inventories. We do not use interest rate swaps,
futures contracts or options on futures, or other types of derivative financial
instruments.
For fixed-rate debt, changes in interest rates generally affect the fair
market value, but not earnings or cash flows. Conversely, for variable-rate
debt, changes in interest rates generally do not influence fair market value,
but do affect future earnings and cash flows. We do not have an obligation to
prepay fixed-rate debt prior to maturity, and as a result, interest rate risk
and changes in fair market value should not have a significant impact on such
debt until we would be required to refinance it. Based on the current level of
variable-rate debt, each one percentage point increase (or decrease) in interest
rates occurring on the first day of the year would result in an increase (or
decrease) in interest expense for the coming year of approximately $68,000.
Our financial instruments are not currently subject to foreign currency
risk or commodity price risk. We do not believe that future market interest rate
risks related to our marketable investments or debt obligations will have a
material impact on the Company or the results of our future operations.
We do not hold any financial instruments for trading purposes. We originate
loans through our 50%-owned affiliate Homestar 21, most of which are at fixed
rates of interest, in the ordinary course of business, and we periodically
securitize these loans to obtain permanent financing for such loan originations.
Accordingly, Homestar 21 loans held for sale are exposed to risk from changes in
interest rates between the time loans are originated and the time at which
Homestar 21 obtains permanent financing, generally at fixed rates of interest,
in the asset-backed securities market or otherwise. Homestar 21 attempts to
manage this risk by minimizing the warehousing period of unsecuritized loans.
Homestar 21 currently does not originate any loans with the intention of holding
them for investment.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is listed under Item 14 (a) and begins at
page F-1 hereof.
33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As previously reported on Form 8-K filed on January 23, 2001, the
Registrant and 21 of its affiliates filed a voluntary petition for bankruptcy on
January 11, 2001, under Chapter 11 of the U.S. Bankruptcy code in the United
States Bankruptcy Court for the Southern District of Texas (the "Bankruptcy
Court"). The Registrant emerged from bankruptcy protection after the Bankruptcy
Court confirmed the Registrant's Third Amended Plan of Reorganization (the
"Plan") on August 14, 2001. The Plan became effective on October 3, 2001, as to
all 22 entities that filed bankruptcy.
Prior to January 21, 2002, KPMG LLP ("KPMG") served as the Registrant's
independent auditors. On January 8, 2002, upon the recommendation of the
Registrant's Audit Committee, the Board of Directors of the Registrant resolved
that the Registrant would retain Mann Frankfort Stein & Lipp CPAs, L.L.P. ("Mann
Frankfort") as the Registrant's independent public accountants following the
Registrant's emergence from bankruptcy. On January 21, 2002, the Registrant
formally engaged Mann Frankfort and notified KPMG (which had last audited the
Registrant's financial statements for the fiscal year ended June 30, 2000) of
the dismissal of KPMG and subsequent engagement of Mann Frankfort.
The reports of KPMG on the Registrant's consolidated financial statements
as of May 31, 1999 and June 30, 2000 and for each of the two years ended May 31,
1999 and June 30, 2000 and the one month ended June 30, 1999, included in the
Registrant's annual report on Form 10-K filed October 13, 2000 contained no
adverse opinion or disclaimer of opinion and were not qualified as to
uncertainty, audit scope or accounting principles.
During the fiscal years ended May 31, 1999 and June 30, 2000, and
subsequent periods through January 21, 2002 there were no disagreements with
KPMG on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of KPMG would have caused them to make reference thereto in
their report on the consolidated financial statements for such periods.
The Registrant requested that KPMG furnish it with a letter addressed to
the Securities and Exchange Commission stating whether or not it agrees with the
above statements. A copy of such letter, dated January 22, 2002, was filed as
Exhibit 16.1 to the Form 8-K filed on January 23, 2001.
ITEM 9A. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we conducted
an evaluation of our disclosure controls and procedures as such term is defined
under Rule 13a-15(e) promulgated under the Securities Act of 1934, as amended,
as of the end of our fiscal year. Based on their evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures are effective. There have been no significant changes (including
corrective actions with regard to significant deficiencies or material
weaknesses) in our internal controls or in other factors that could
significantly affect these controls subsequent to the date of the evaluation
referenced above.
34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of the Company, their age and their
position as of September 23, 2003 are set forth below.
YEAR TERM
---------
NAME AGE POSITION ENDS
---- --- -------- ----
Finis F. Teeter . . . . . . . . . . . . . . 59 President, Chief Executive
Officer and Director 2004
Craig A. Reynolds . . . . . . . . . . . . . 54 Executive Vice-President, Chief
Financial Officer and Secretary
Charles N. Carney, Jr . . . . . . . . . . . 48 Vice President, Chief Operating
Officer-Retail Operations
Jackie H. Holland . . . . . . . . . . . . . 56 Vice President, Chief Operating
Officer-Manufacturing Operations
Richard N. Grasso (1) (2) . . . . . . . . . 57 Director, Chairman 2004
Ellis McKinley (1) (2). . . . . . . . . . . 51 Director 2004
Richard F. Dahlson. . . . . . . . . . . . . 43 Director 2004
_______________________________
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
FINIS F. TEETER founded the Company in 1971. Mr. Teeter has served as
President, Chief Executive Officer and a Director since October 2000, and also
served as Chairman of the Board and Chief Executive Officer from 1971 until
August 1993. From August 1993 until January 2000, Mr. Teeter served as Chairman
of the Board and Co-Chief Executive Officer. From January to October 2000, Mr.
Teeter served as a Director of the Company. Shortly before the Company's
reorganization, Mr. Teeter was appointed as the President and CEO and was
actively involved in repositioning and downsizing operations as well as defining
core operations and key provisions of the Company's Plan of Reorganization.
Prior to forming the Company, Mr. Teeter served in various sales and sales
management capacities with Teeter Mobile Homes from 1962 to 1969 and with Mobile
Home Industries from 1969 to late 1970.
CRAIG A. REYNOLDS has served as Executive Vice President, Chief Financial
Officer and Secretary of the Company since joining the Company in July 1982. Mr.
Reynolds is a Certified Public Accountant (inactive status) and holds an MBA
from Florida Tech as well as a BBA (Accounting) from Kent State University. Mr.
Reynolds was the Company's CFO before and during the reorganization and was
actively involved in cash management, administrative downsizing and
centralization, and meeting all reorganization-related reporting obligations of
the Company.
CHARLES N. CARNEY, JR. has served as Vice President, Chief Operating
Officer-Retail Operations of the Company since June 1987. Mr. Carney served as
a Director of the Company from 1993 to 2000. Mr. Carney has served in various
sales, sales management and senior sales management capacities with the Company
since joining its predecessor in 1977. Mr. Carney holds a Bachelor of Business
Administration degree from Eastern Kentucky University.
JACKIE H. HOLLAND has served as Vice President Chief Operating
Officer-Manufacturing Operations of the
35
Company since August 2003. From August 1993 to July 2003, Mr. Holland served as
Vice President of Finance, Manufacturing Operations for the Company. Mr. Holland
has more than 30 years of industry experience in various manufacturing and
financial management capacities, at both the plant and corporate levels, with
Oak Creek Homes, Redman Homes and Palm Harbor Homes. Mr. Holland holds a
Bachelor of Science degree in Accounting from the University of North Alabama.
RICHARD N. GRASSO has been a director of the Company since October 2001.
Mr. Grasso has served as Chairman of the Board of Directors since January 2003
and serves as Chairman of the Audit Committee and is a member of the
Compensation Committee. Mr. Grasso is currently the Director of Credit for the
Ben E. Keith Company. From 1974 through 2001 Mr. Grasso was a Vice President
with Kevco, Inc., which was a supplier to the manufactured housing industry and
a creditor of the Company prior to the Company's reorganization. Kevco, Inc.
filed for bankruptcy protection under Chapter 11 on January 1, 2001. Mr. Grasso
was a co-chair of the Creditor's Committee during the Company's reorganization
and has a substantial amount of experience as a supplier to the manufactured
housing industry. Mr. Grasso holds a BA in Business Administration and
Economics from Iowa Wesleyan.
ELLIS MCKINLEY has been a director of the Company since January 2003, and
serves as Chairman of the Compensation Committee and as a member of the Audit
Committee. Mr. McKinley is currently the Chief Financial Officer for Transplace,
Inc., an internet-enabled logistics and supply chain service provider and was
the Chief Financial Officer for Kevco, Inc. from 1995 to 1999. Kevco, Inc. was a
supplier to the manufactured housing industry. Mr. McKinley was an audit partner
for Grant Thorton from 1981 until 1994. Mr. McKinley is a Certified Public
Accountant and holds a BBA in Accounting from the University of Texas.
RICHARD F. DAHLSON has been a director of the Company since January 2002.
Mr. Dahlson is a partner in Jackson Walker L.L.P., a law firm headquartered in
Dallas, Texas, which served as outside corporate counsel to the Company from
1993 to 2001. Mr. Dahlson has been with Jackson Walker since 1984. Mr. Dahlson
received his B.S.B.A. from the University of Minnesota and his J.D. degree from
the University of Wisconsin. Mr. Dahlson also serves as a director of MAII
Holdings, Inc., a holding company, and CRD Holdings, Inc., a subsidiary of MAII
that is engaged in the long-term automobile rental business.
The members of the Audit Committee are Ellis McKinley and Richard Grasso,
who serves as Chairman. The board of directors, in its business judgment, has
determined that each member of the Audit Committee meets the independence and
experience requirements as determined under the National Association of
Securities Dealers' listing standards and that Mr. McKinley has the accounting
or related financial management expertise to be considered the "audit committee
financial expert."
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers, and persons who own more than 10% of our common stock,
to file reports of holdings and transactions in our securities with the SEC and
to furnish us with copies of all such reports. Based solely upon a review of the
reports furnished to us with respect to the fiscal year ended June 27, 2003, we
believe that Mr. McKinley filed a Form 3 on September 10, 2003, that was
required to be filed on February 3, 2003 (ten days after Mr. McKinley was
appointed as a Series C director).
CODE OF ETHICS
The Company adopted our Code of Business Conduct and Ethics ("Code of
Ethics") on December 17, 2002. Our Code of Ethics sets forth standards of
conduct for all officers, directors and employees of the Company and its
subsidiary companies, including all full and part-time employees and certain
persons that provide services on our behalf, such as agents.
36
ITEM 11. EXECUTIVE COMPENSATION
The following discloses summary information regarding the compensation of
(i) Finis F. Teeter, the Chief Executive Officer, and (ii) the three most highly
compensated officers other than Mr. Teeter that earned in excess of $100,000
during the fiscal year ended June 27, 2003 (collectively the "Named
Executives").
Annual Compensation Long Term Compensation
------------------------------------------------- ------------------------
Awards
------------------------
Securities
Underlying
Other Annual Restricted Options/
Name and Compensation Stock SARs
Principal Position Year Salary ($) Bonus ($) ($) Awards ($) (Shares)
---------------------------------------------------------------------------
Finis F. Teeter . . . . . . . . . . . . . . 2003 $ 286,154(b) $ 0 $ (a) -- --
Director, President and. . . . . . . . . 2002 288,771 204,750 (a) -- 2,999,900
Chief Executive Officer. . . . . . . . . 2001 334,632 0 (a) -- --
Craig A. Reynolds . . . . . . . . . . . . . 2003 $ 181,231(b) $ 0 $ (a) -- --
Executive Vice President,. . . . . . . . 2002 159,231 154,675 (a) -- 250,000
Chief Financial Officer. . . . . . . . . 2001 171,000 25,000 (a) -- --
and Secretary
Charles N. Carney, Jr.. . . . . . . . . . . 2003 $ 185,939(b) $ 0 $ (a) -- --
Vice President, Chief. . . . . . . . . . 2002 185,741 154,675 (a) -- 250,000
Operating Officer-Retail . . . . . . . . 2001 225,000 50,000 (a) -- --
Operations
James J. Fallon . . . . . . . . . . . . . . 2003 $ 190,769(b)(c) $ 0 $ (a) -- --
Vice President, Chief. . . . . . . . . . 2002 191,153 136,500 (a) -- 250,000
Operating Officer- . . . . . . . . . . . 2001 0 0 0 -- --
Manufacturing Operations -
Long Term Compensation
------------------------
Payouts
---------
LTIP All Other
Name and Payouts Compensation
Principal Position ($) ($)
-------------------------
Finis F. Teeter . . . . . . . . . . . . . . $ -- $ --
Director, President and. . . . . . . . . -- --
Chief Executive Officer. . . . . . . . . -- --
Craig A. Reynolds . . . . . . . . . . . . . $ -- $ --
Executive Vice President,. . . . . . . . -- --
Chief Financial Officer. . . . . . . . . -- --
and Secretary
Charles N. Carney, Jr.. . . . . . . . . . . $ -- $ --
Vice President, Chief. . . . . . . . . . -- --
Operating Officer-Retail . . . . . . . . -- --
Operations
James J. Fallon . . . . . . . . . . . . . . $ -- $ --
Vice President, Chief. . . . . . . . . . -- --
Operating Officer- . . . . . . . . . . . -- --
Manufacturing Operations -
_______________________________
(a) Other Annual Compensation was less than $50,000 or 10% of such officer's
annual salary and bonus for such year.
(b) Includes a voluntary 10% reduction in salary from January 1, 2003 through
June 27, 2003.
(c) Mr. Fallon retired effective July 31, 2003 and was replaced by Jackie
Holland. Mr. Fallon will consult with the Company on a part-time basis.
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
We did not grant any Option/SAR Grants to executives in fiscal 2003.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table provides information on option/SAR exercises in fiscal
2003 by the Named Executives and the values of such officers' unexercised
options at June 27, 2003.
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options/SARs at Options/SARs at
Shares Fiscal Year-End Fiscal Year-End
Acquired Value (#); Exercisable/ (#) ; Exercisable/
on Exercise Realized Unexercisable Unexercisable (1)
----------- --------- ----------------- --------------------
Finis F. Teeter. . . . N/A $ N/A 599,980/2,399,920 $ --/--
Craig A. Reynolds. . . N/A N/A 50,000/200,000 $ --/--
Charles N. Carney, Jr. N/A N/A 50,000/200,000 $ --/--
James J. Fallon. . . . N/A N/A 50,000/200,000 $ --/--
____________________________
(1) The Company's common equity has not been publicly traded and price
quotations have not been established since the Company emerged from bankruptcy,
effective October 3, 2001. Therefore, the Company is unable to accurately
determine the value of any unexercised options
37
COMPENSATION OF DIRECTORS
The Company does not pay any additional remuneration to employees for
serving as directors of the Company. Other directors of the Company who are not
employees receive an annual retainer fee of $36,000, payable in monthly
installments of $3,000, plus fees of $2,000 per day for attendance at meetings
of the Board of Directors and $1,000 per day for attendance at meetings of its
committees or for participation in telephonic meetings. The Chairman of the
Board receives an additional quarterly retainer fee of $1,000, and committee
chairmen receive an additional fee of $1,000 quarterly. Directors of the Company
are also reimbursed for out-of-pocket expenses incurred in connection with
attendance at Board and committee meetings. The directors, along with senior
management, voluntarily reduced their fees 10% from January 1, 2003 through June
30, 2003.
AUDIT COMMITTEE REPORT
The following Report of the Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent the Company specifically incorporates this
Report by reference therein. The members of the Audit Committee are Ellis
McKinley and Richard Grasso, who serves as Chairman. The board of directors, in
its business judgment, has determined that each member of the Audit Committee
meets the independence and experience requirements as determined under the
National Association of Securities Dealers' listing standards and that one
member (Mr. McKinley) has the accounting or related financial management
expertise to be considered the "audit committee financial expert."
The Audit Committee acts under a written charter, which sets forth its
responsibilities and duties, as well as requirements for the committee's
composition and meetings. To carry out its responsibilities, the Audit Committee
met nine times during fiscal 2003. Members of the Audit Committee met with
management, the Company's outside auditors, Mann Frankfort Stein & Lipp CPAs,
L.L.P. ("Mann Frankfort"), and the Company's general counsel, Thompson & Knight,
L.L.P. to review and discuss all financial statements prior to their issuance
and to discuss significant accounting issues, if any. The Audit Committee's
review included discussion with Mann Frankfort on those matters required to be
discussed pursuant to Statement on Auditing Standards No. 61 "Communication With
Audit Committees," as amended by Statement on Auditing Standards No. 90. The
Audit Committee also discussed with Mann Frankfort matters relating to the
independence of Mann Frankfort, including the disclosures made to the Audit
Committee as required by the Independence Standards Board Standard No. 1
"Independence Discussions with Audit Committees". The Audit Committee has
discussed with the auditors that the auditors are retained by the Audit
Committee, and that the auditors must raise any concerns about the Company's
financial reporting and procedures directly with the Audit Committee. Based on
these discussions with the independent auditors, the Audit Committee believes it
has a basis for its oversight judgments and for recommending that the Company's
audited financial statements be included in the Company's Annual Report on Form
10-K.
Additionally, the Audit Committee has discussed with management and the
independent accountants the scope of the audit, the Company's critical
accounting policies, and the Company's financial statements. On the basis of the
reviews and discussions mentioned, the Audit Committee recommended that the
audited financial statements be included in the Company's Annual Report on Form
10-K for the year ended June 27, 2003 for filing with the SEC. Also based on
these reviews, as well as an assessment of the performance of the key engagement
partners at Mann Frankfort, the Audit Committee recommended that Mann Frankfort
be reappointed as the Company's independent auditors for the 2004 fiscal year.
Members of the Audit Committee rely without independent verification on the
information provided to them by management and the independent auditors. The
Audit Committee's oversight function thus does not duplicate the activities of
the management verification that management has employed appropriate accounting
and financial reporting principles, or that appropriate procedures to ensure
compliance with accounting standards and laws and regulation, or that the
financial statements have been presented in accordance with accounting
principles generally accepted in the United States of America.
Respectfully submitted,
Richard Grasso, Chairman
Ellis McKinley
38
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is composed of
non-employee directors of the Company. The Compensation Committee's duties
include reviewing and making recommendations to the Board generally with respect
to the compensation of the Company's executive officers. The Board of Directors
reviews these recommendations and approves all executive compensation action.
During the Company's reorganization, the official committee of unsecured
creditors appointed by the United States Trustee under Chapter 11 of the
Bankruptcy Code (the "Creditors Committee") and the Company established the
overall framework for the compensation for Company employees. Since the
Company's emergence from bankruptcy in October 2001, the Compensation Committee
has implemented and provided oversight of the compensation framework set forth
under the Plan of Reorganization.
The Company's executive compensation program is designed to align
compensation with the Company's business strategy, values and management
initiatives. The program:
- Integrates compensation programs with the Company's annual and
long-term strategic planning and measurement processes.
- Reinforces strategic performance objectives through the use of
incentive compensation programs.
- Rewards executives for long-term strategic management and the
enhancement of shareholder value by delivering an appropriate
ownership interest in the Company.
- Seeks to attract and retain quality talent, which is critical to
both the short-term and long-term success of the Company.
In connection with the Company's Plan of Reorganization, the Company
entered into a written employment agreement with Mr. Teeter in October 2001.
Mr. Teeter abstains from voting on any issue submitted to the Board of Directors
that relates to executive compensation. The Company has not entered into written
employment agreements with any other of its executive officers. See the section
titled "Employment Agreements" above for further details.
The three components of the Company's current compensation program for
executive officers are: (i) base compensation, (ii) discretionary annual bonuses
and (iii) incentive stock options.
Base Compensation
During the reorganization process, the Company and the Creditors Committee
jointly determined the framework for base compensation for the Company's
executive officers and management, after seeking the advice and guidance of an
outside consulting firm. The guidance provided by the outside consultant
included evaluating and determining appropriate ranges of pay for management to
facilitate a salary structure. In determining appropriate pay ranges, the
Company and the Creditors Committee examined market compensation levels for
executives who were employed in similar positions in public companies with
comparable revenues, net income and market capitalization. This market
information is used as a frame of reference for annual salary adjustments and
starting salaries and will continue to be monitored by the Compensation
Committee.
Discretionary Annual Bonuses
The Compensation Committee believes that annual cash bonuses may be
effectively used to motivate and reward the accomplishment of corporate annual
objectives, reinforce strong performance with differentiation in individual
awards based on contributions to business results and to provide a fully
competitive compensation package with the objective of attracting, rewarding and
retaining individuals of the highest quality. As a pay-for-performance plan,
year-end cash bonus awards are paid upon the achievement of performance goals
established for the fiscal year. Executive officers are measured on two
performance components: (1) corporate financial performance (specific
measurements are defined each year and threshold, target and maximum performance
levels are established to reflect the Company's objectives) and (2) key
individual performance which contributes to achieving
39
critical results for the Company. A weighting is established for each component
taking into account the relative importance of each based on each executive
officer's position. Appropriate performance objectives are established by the
Compensation Committee and recommended to the Board of Directors for each fiscal
year in support of the Company's strategic plan.
Incentive Stock Options
Stock options align the interests of employees and shareholders by
providing value to the employee when the stock price increases. All options are
granted at an exercise price of at least 100% of the fair market value of the
Series M Common Stock on the date of grant. Incentive stock options were granted
to Messrs. Teeter, Reynolds, Carney, Fallon and other members of management
under the Company's 2001 Management Incentive Program in connection with the
Company's emergence from bankruptcy during fiscal 2002. The specific amounts of
stock options granted under the 2001 Management Incentive Program, which Program
was approved under the Plan of Reorganization, were determined collectively by
the Company and the Creditors Committee, after seeking the advice and guidance
of an independent consultant during the negotiations related to the Company's
reorganization. These stock options vest seven years from the date of grant and
may vest earlier (up to 20% per year) if certain annual performance criteria are
met.
Section 162(m) of the Interval Revenue Code of 1986, as amended (the
"Code"), limits an employer's income tax deduction for compensation paid to
certain key executives of a public company to $1,000,000 per executive per year.
The Company has no executives whose salaries currently approach this level and,
accordingly, has not addressed what approach it will take with respect to
section 162(m), except to the extent the 2001 Management Incentive Program
contains standard limits and provisions on awards which are intended to exempt
such awards from the section 162(m) deduction limits.
Compensation of Chief Executive Officer
In connection with the Company's reorganization, the annual base salary of
Finis F. Teeter, President and Chief Executive Officer, was established at
$300,000. As detailed below in the section titled "Employment Agreements", Mr.
Teeter was awarded an option to purchase 2,999,900 shares of Series M Common
Stock under the Company's Plan of Reorganization. These stock options vest seven
years from the date of grant and may vest earlier (up to 20% per year) if
certain annual performance criteria are met. The Board of Directors approved
the accelerated vesting of 20% of these options after reviewing the Company's
performance during the partial fiscal year following reorganization, which ended
June 28, 2002. Mr. Teeter was also awarded a cash bonus in the amount of
$204,750 based upon the Company's performance for the partial fiscal year
following the Company's reorganization. The Compensation Committee concluded
that Mr. Teeter's total fiscal 2003 compensation was competitive and aligned in
the mid-range of total compensation for other chief executives of publicly held
companies in similar businesses and of similar size. Furthermore, the
Compensation Committee believes that total fiscal 2003 compensation reflects its
confidence in Mr. Teeter's ability to lead the Company to execute the Company's
strategic plans.
This report is submitted by the members of the Compensation Committee:
Ellis McKinley, Chairman
Richard N. Grasso
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement, effective as of October
3, 2001, with Mr. Teeter (the "Employment Agreement") for a five-year term.
Under the Employment Agreement, Mr. Teeter among other things (a) receives an
annual salary of $300,000; and (b) is entitled to participate in fringe benefit
or incentive compensation plans as authorized and adopted from time to time by
the Company and made available to other employees, including the 2001 Management
Incentive Program, any pension plan, profit-sharing plan, disability or sick pay
plan, thrift and savings plan, medical reimbursement plan, group life insurance
plan or other employee benefit plans made available to other employees and
executives of the Company. The Company granted Mr. Teeter an option to purchase
2,999,900 shares of Series M Common Stock under the 2001 Management Incentive
Program
40
during fiscal year 2002. These options vest seven years from the date of grant
and may vest earlier (up to 20% per year) if certain annual performance criteria
established by the Board of Directors are met. In addition, all unvested options
vest immediately if Mr. Teeter is terminated without cause.
In the event of a change of control of the Company, either the Company or
Mr. Teeter may terminate the Employment Agreement upon 30 days notice to the
other party. Under the Employment Agreement, if the Company terminates Mr.
Teeter's employment for other than cause, Mr. Teeter will be entitled to receive
an amount equal to one-half his base salary for the remainder of the five-year
term of the Agreement, payable in accordance with the Company's normal payroll
procedures. If the Company terminates Mr. Teeter's employment because of the
failure of the Company to meet reasonable performance targets established by the
Board of Directors from time to time, Mr. Teeter will be entitled to receive an
amount equal to one-quarter his base salary for the remainder of the five-year
term of the Agreement, payable in accordance with the Company's normal payroll
procedures. The maximum amount, however, that Mr. Teeter shall be entitled to
receive for early termination of the Employment Agreement by the Company is
$500,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers served as a member of the compensation
committee of our Board of Directors. None of our executive officers served as a
director of any other entity whose executive officer served as a member of our
Compensation Committee.
41
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
BENEFICIAL OWNERSHIP TABLE
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of September 23, 2003 by
(i) each of the Company's directors, (ii) each of the Company's executive
officers, (iii) all directors and executive officers as a group and (iv) each
person or entity who is known by the Company to own five percent or more of any
class of the Company's voting securities.
Name and Address of Amount and Nature of
Beneficial Owner Title of Class Beneficial Ownership(2) Percent of Voting
Securities (2)
- ----------------------------------------------------------------------------------------------------------------------
Each of the executive officers and directors:
Richard F. Dahlson (1) None *
Richard N. Grasso (1) None *
Ellis McKinley (1) None *
Finis F. Teeter (1) Series M Common Stock 600,080 shares(3) 5.6%
Craig A. Reynolds (1) Series M Common Stock 50,000 shares(4) *
Charles N. Carney, Jr. (1) Series M Common Stock 50,000 shares(4) *
Jackie H. Holland (1) Series M Common Stock 13,000 shares(5) *
All executive officers and directors as a group:. Series M Common Stock 713,080 shares 6.6%
Each person or entity who owns more than 5% of any class of the Company's voting
securities (2):
Allstate Life Insurance Company
3075 Sanders Road, Suite G5A Series C Common Stock 844,161 shares 7.9%
Northbrook, IL 60062
Massachusetts Mutual Life Insurance Co.
1500 Main Street, Suite 2800 Series C Common Stock 1,402,695 shares 13.1%
Springfield, MA 01115
The Northwestern Mutual Life Insurance Co.
720 East Wisconsin Avenue Series C Common Stock 1,125,241 shares 10.5%
Milwaukee, WI 53202
Kemper Investors Life Insurance Co.
Custody #195279
The Bank of New York Series C Common Stock 551,302 shares 5.1%
One Wall Street, 3rd Floor
New York, NY 10286
_______________________
* Less than 1%
(1) The business address of each of the directors and officers is c/o American
Homestar Corporation, 2450 South Shore Boulevard, Suite 300, League City, Texas
77573.
(2) The Company's voting securities consist of Series C Common Stock and Series
M Common Stock. Under the Third Amended and Restated Plan of Reorganization,
effective October 3, 2001, the Company issued 10,000,000 shares of its Series C
Common Stock to certain entities that were creditors prior to the Company's
reorganization. As of September 23, 2003, the Company had 6,780,364 shares of
Series C Common Stock issued and outstanding and 3,219,636 shares of Series C
Common Stock deemed issued and outstanding that will be determined in name and
amount as the claims process arising from the registrant's Third Amended and
Restated Plan of Reorganization is completed. Prior to the completion of the
claims process, the Company is unable to make an accurate determination of
additional former creditors that may ultimately become owners of at least 5% of
the voting securities of the Company.
42
(3) Includes 100 shares of Series M Common Stock, being all of the shares of
Series M Common Stock currently outstanding, as well as vested but unexercised
options to purchase 599,980 shares of Series M Common Stock pursuant to the 2001
Management Incentive Program.
(4) Includes vested but unexercised options to purchase 50,000 shares of Series
M Common Stock pursuant to the 2001 Management Incentive Program.
(5) Includes vested but unexercised options to purchase 13,000 shares of Series
M Common Stock pursuant to the 2001 Management Incentive Program.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth certain information as of June 27, 2003 with
respect to compensation plans of the Company under which equity securities of
the registrant are authorized for issuance to employees or non-employees (such
as directors, consultants, advisors, vendors, customers, suppliers or lenders)
in exchange for consideration in the forms of goods or services as described in
Statement of FAS No. 123, "Accounting for Stock-Based Compensation."
Number of securities to be issued upon Weighted-average exercise price of
exercise of outstanding options, outstanding options, warrants and
Plan Category warrants and rights rights
- ----------------------------- --------------------------------------- ------------------------------------
(a) (b)
Equity compensation plans
approved by shareholders. . . 4,899,900 $ 1.35
Equity compensation plans not
approved by shareholders. . . None N/A
--------------------------------------- ------------------------------------
TOTAL . . . . . . . . . . . . 4,899,900 $ 1.35
======================================= ====================================
Number of securities remaining
available for future issuance
under equity compensation plans
(excluding securities reflected in
Plan Category column (a)
- ----------------------------- -----------------------------------
(c)
Equity compensation plans
approved by shareholders. . . 100,000
Equity compensation plans not
approved by shareholders. . . N/A
-----------------------------------
TOTAL . . . . . . . . . . . . 100,000
===================================
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has entered into two lease agreements with MOAMCO Properties,
Inc. ("MOAMCO"), a corporation owned by Mr. Teeter, under which the Company
leases two retail sales centers. Between June 29, 2002 and June 27, 2003, the
Company paid $79,208 to MOAMCO under the lease agreements. The Company believes
that the lease agreements are on terms as favorable to the Company as generally
available to unaffiliated parties for comparable properties. Both lease
agreements expired in May 2003 and were renewed for a one-year period after
review and approval by the Company's independent directors.
It is the policy of the Company that any future transactions with
affiliated individuals or entities will be on terms as favorable to the Company
as those reasonably available from unrelated third parties, and any such
affiliated transactions will require the approval of a majority of the Company's
disinterested directors.
43
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of June 28, 2002 and June 27, 2003 . . . . . . . . . . . . . F-3
Consolidated Statements of Operations for the year ended June 29, 2001, three months ended
September 29, 2001, nine months ended June 28, 2002 and year ended June 27, 2003. . . . . F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the year ended June 29, 2001,
three months ended September 29, 2001, September 29, 2001 (Fresh Start),
nine months ended June 28, 2002 and year ended June 27, 2003. . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the year ended June 29, 2001, three months ended
September 29, 2001, nine months ended June 28, 2002 and year ended June 27, 2003. . . . . F-6
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . F-7
(2) SUPPLEMENTARY SCHEDULE TO FINANCIAL STATEMENTS
Financial Statement Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . . . F-28
(3) EXHIBITS
The exhibits filed as part of this report are listed under "Exhibits" at
subsection (c) of Item 14
(b) REPORTS ON FORM 8-K
During the fourth quarter of fiscal 2003, the Company filed one
Current Report on Form 8-K:
Report on Form 8-K dated June 6, 2003. Item 9. Regulation FD
Disclosure; Results of Operations and Financial Condition. This report
attached a press release issued by the Company announcing that the
Company had amended its inventory finance agreement with Associates
Housing Finance, LLC.
(c) LIST OF EXHIBITS
2.1 Debtors' Third Amended and Restated Plan of Reorganization
(Incorporated by reference to Exhibit 99.2 to the Company's
Current Report on Form 8-K filed on January 8, 2002)
3.1 Amended and Restated Articles of Incorporation of the Company
(Incorporated by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q filed on May 10, 2002)
3.2 Amended and Restated Bylaws of the Company (Incorporated by
reference to Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q filed on May 10, 2002)
3.3 Charter for the Audit Committee of the Company, dated September
19, 2001 (Incorporated by reference to the Company's Annual
Report on Form 10-K filed on September 24, 2002)
3.4 Charter for the Compensation Committee of the Company, dated
September 18, 2001 (Incorporated by reference to the Company's
Annual Report on Form 10-K filed on September 24, 2002)
44
10.1 Employment Agreement, effective as of October 3, 2001, by and
between the Company and Finis F. Teeter (Incorporated by
reference to the Company's Annual Report on Form 10-K filed on
September 24, 2002)
10.2 American Homestar Corporation 2001 Management Incentive Program,
effective as of October 3, 2001 (Incorporated by reference to the
Company's Annual Report on Form 10-K filed on September 24, 2002)
10.3 Non-Qualified Stock Option Agreement, effective as of October 3,
2002, by and between the Company and Finis F. Teeter
(Incorporated by reference to the Company's Annual Report on Form
10-K filed on September 24, 2002)
10.4 Non-Qualified Stock Option Agreement, effective as of October 3,
2002, by and between the Company and Craig A. Reynolds
(Incorporated by reference to the Company's Annual Report on Form
10-K filed on September 24, 2002)
10.5 Non-Qualified Stock Option Agreement, effective as of October 3,
2002, by and between the Company and Charles N. Carney, Jr.
(Incorporated by reference to the Company's Annual Report on Form
10-K filed on September 24, 2002)
10.6 Non-Qualified Stock Option Agreement, effective as of October 3,
2002, by and between the Company and James J. Fallon
(Incorporated by reference to the Company's Annual Report on Form
10-K filed on September 24, 2002)
10.7* Non-Qualified Stock Option Agreement, effective as of October 3,
2002, by and between the Company and Jackie Holland
14.1 American Homestar Corporation Code of Business Conduct and
Ethics, adopted on December 17, 2002 (Incorporated by reference
to the Company's Quarterly Report on Form 10-Q filed on May 2,
2003)
16.1 Letter Regarding Change in Certifying Accountant (Incorporated by
reference to Exhibit 16.1 to the Company's Current Report on Form
8-K filed on January 25, 2002)
21.1* Subsidiaries of American Homestar Corporation
31.1* Certification pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a))
for Finis F. Teeter, Chief Executive Officer of the Company.
31.2* Certification pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a))
for Craig A. Reynolds, Chief Financial Officer
32.1** Certifications pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for
Finis F. Teeter, Chief Executive Officer, and Craig A. Reynolds,
Chief Financial Officer of the Company.
_______________
* Filed herewith
** Furnished herewith
45
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.
AMERICAN HOMESTAR CORPORATION
Date: September 23, 2003 By: /s/ FINIS F. TEETER
----------------------------------
Finis F. Teeter, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------------------------- -------------------------------- ------------------
/s/ FINIS F. TEETER President, CEO and September 23, 2003
- --------------------------- Director
Finis F. Teeter
/s/ CRAIG A. REYNOLDS Executive Vice President, Chief September 23, 2003
- --------------------------- Financial Officer, and Secretary
Craig A. Reynolds (Principal Financial
and Accounting Officer)
/s/ ELLIS L. MCKINLEY Director September 23, 2003
- ---------------------------
Ellis L. McKinley
/s/ RICHARD N. GRASSO Director September 23, 2003
- ---------------------------
Richard N. Grasso
/s/ RICHARD F. DAHLSON Director September 23, 2003
- ---------------------------
Richard F. Dahlson
46
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of June 28, 2002 and June 27, 2003 . . . . . . . . . . . . . F-3
Consolidated Statements of Operations for the year ended June 29, 2001, three months ended
September 29, 2001, nine months ended June 28, 2002 and year ended June 27, 2003. . . . . F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the year ended June 29, 2001,
three months ended September 29, 2001, September 29, 2001 (Fresh Start),
nine months ended June 28, 2002 and year ended June 27, 2003. . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the year ended June 29, 2001, three months ended
September 29, 2001, nine months ended June 28, 2002 and year ended June 27, 2003. . . . . F-6
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . F-7
Financial Statement Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . . . F-29
F-1
Independent Auditors' Report
----------------------------
To the Board of Directors of
American Homestar Corporation
League City, Texas
We have audited the accompanying consolidated balance sheets of American
Homestar Corporation and subsidiaries (the "Company") as of June 27, 2003 and
June 28, 2002 and the related consolidated statements of operations,
shareholders' equity (deficit) and cash flows for the year ended June 27, 2003,
the nine months ended June 28, 2002 (Successor Company), the three months ended
September 29, 2001 (Predecessor Company), and the year ended June 29, 2001
(Predecessor Company). These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, on August 14,
2001, the Bankruptcy Court entered an order confirming the Third Amended Joint
Plan of Reorganization, which became effective after the close of business on
October 3, 2001. Accordingly, the accompanying balance sheets have been prepared
in conformity with American Institute of Certified Public Accountants Statement
of Position 90-7, "Financial Reporting for Entities in Reorganization Under the
Bankruptcy Code," for the Company as a new entity with assets, liabilities, and
a capital structure having carrying values not comparable with prior periods as
described in Note 1.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Homestar Corporation and subsidiaries as of June 27, 2003 and June 28,
2002, and the consolidated results of their operations and their cash flows for
the year ended June 27, 2003 (Successor Company), for the nine months ended June
28, 2002 (Successor Company), the three months ended September 29, 2001
(Predecessor Company), and the year ended June 29, 2001 (Predecessor Company),
in conformity with accounting principles generally accepted in the United
States.
/s/ MANN FRANKFORT STEIN & LIPP CPAs, L.L.P.
Houston, Texas
August 15, 2003
F-2
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)
JUNE 28, JUNE 27,
2002 2003
--------- ----------
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,250 $ 14,890
Cash - reserved for claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,244 4,341
Cash - restricted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,190 640
Accounts receivable - trade, net . . . . . . . . . . . . . . . . . . . . . . . . . 2,692 2,692
Accounts receivable - other, net . . . . . . . . . . . . . . . . . . . . . . . . . 287 141
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,006 30,025
Prepaid expenses, notes receivable and other current assets. . . . . . . . . . . . 792 943
--------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,461 53,672
--------- ----------
Notes receivable and other assets. . . . . . . . . . . . . . . . . . . . . . . . . 555 556
Investments in affiliates, at equity . . . . . . . . . . . . . . . . . . . . . . . 3,205 3,884
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . 10,149 9,469
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,379 3,354
--------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,749 $ 70,935
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Floor plan payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,689 $ 6,826
Current installments of notes payable. . . . . . . . . . . . . . . . . . . . . . . 370 70
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,315 1,292
Warranty reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,818 1,687
Accrued other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,265 4,817
Liquidation and plan reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,626 1,269
Claims reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,067 1,666
Initial distribution payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,177 2,675
--------- ----------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 41,327 20,302
--------- ----------
Notes payable, less current installments . . . . . . . . . . . . . . . . . . . . . 644 502
Minority interest in consolidated subsidiary . . . . . . . . . . . . . . . . . . . 965 1,226
Commitments and contingencies. . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
SHAREHOLDERS' EQUITY
Common stock series C, par value $0.01; 15,000,000 shares authorized,
10,000,000 shares issued and outstanding at June 27, 2003 and June 28, 2002. 100 100
Common stock series M, par value $0.01; 7,500,000 shares authorized, 100
shares issued and outstanding at June 27, 2003 and June 28, 2002 . . . . . . -- --
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,449 49,355
Retained earnings and (accumulated deficit). . . . . . . . . . . . . . . . . . . . 1,264 (550)
--------- ----------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . 49,813 48,905
--------- ----------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . . . $ 92,749 $ 70,935
========= ==========
See accompanying notes to consolidated financial statements
F-3
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)
YEAR THREE MONTHS NINE MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 29, SEPTEMBER 29, JUNE 28, JUNE 27,
2001 2001 2002 2003
---------- --------------- ------------- ------------
PREDECESSOR CO. SUCCESSOR CO.
--------------------------- ---------------------------
Revenues:
Net sales . . . . . . . . . . . . . . . . . . $ 217,375 $ 21,107 $ 64,234 $ 71,847
Other revenues. . . . . . . . . . . . . . . . 24,399 5,137 18,584 20,293
---------- --------------- ------------- ------------
Total revenues. . . . . . . . . . . . . 241,774 26,244 82,818 92,140
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . 174,999 16,086 52,184 63,878
Selling, general and administrative . . . . . 77,948 10,290 28,703 29,566
Restructuring charges, goodwill and asset
impairment . . . . . . . . . . . . . . . . 139,216 -- -- --
---------- --------------- ------------- ------------
Total costs and expenses. . . . . . . . 392,163 26,376 80,887 93,444
---------- --------------- ------------- ------------
Operating income (loss) . . . . . . . . (150,389) (132) 1,931 (1,304)
Interest expense . . . . . . . . . . . . . . . . (11,231) (214) (825) (955)
Other income (expense) . . . . . . . . . . . . . 813 88 245 363
---------- --------------- ------------- ------------
Income (loss) before items shown below. (160,807) (258) 1,351 (1,896)
Reorganization items:
Fresh-Start adjustments . . . . . . . . . . . -- 18,863 -- --
Reorganization costs. . . . . . . . . . . . . (2,796) (1,433) -- --
---------- --------------- ------------- ------------
Income (loss) before items shown below. (163,603) 17,172 1,351 (1,896)
Income tax expense (benefit). . . . . . . . . 16,239 20 247 282
---------- --------------- ------------- ------------
Income (loss) before items shown below. (179,842) 17,152 1,104 (2,178)
Earnings (losses) in affiliates. . . . . . . . . 492 145 409 606
Minority interests . . . . . . . . . . . . . . . 142 (50) (249) (242)
---------- --------------- ------------- ------------
Income (loss) before items shown below. (179,208) 17,247 1,264 (1,814)
Extraordinary item:
Gain on forgiveness of debt . . . . . . -- 139,130 -- --
---------- --------------- ------------- ------------
Net income (loss) . . . . . . . . . . . $(179,208) $ 156,377 $ 1,264 $ (1,814)
========== =============== ============= ============
Earnings (loss) per share - basic and diluted:
Income (loss) . . . . . . . . . . . . . . . . N/A N/A $ 0.13 $ (0.18)
========== =============== ============= ============
Weighted average shares
Outstanding - basic and diluted . . . . . . . N/A N/A 10,000,100 10,000,100
========== =============== ============= ============
See accompanying notes to consolidated financial statements
F-4
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS EXCEPT FOR SHARE INFORMATION)
RETAINED
ADDITIONAL EARNINGS TOTAL
PREFERRED STOCK COMMON STOCK PAID-IN (ACCUMULATED SHAREHOLDERS'
SHARES VALUE SHARES PAR VALUE CAPITAL DEFICIT) EQUITY
--------- -------- ------------ ----------- --------- ---------- ----------
BALANCES AT JUNE 30, 2000 509,167 $ 6,110 18,423,707 $ 921 62,519 $ 23,352 $ 92,902
Redemption of preferred stock (375,000) (4,500) -- -- -- -- (4,500)
Payment of preferred stock
dividends -- -- -- -- -- (521) (521)
Net loss -- -- -- -- -- (179,208) (179,208)
--------- -------- ------------ ----------- --------- ---------- ----------
BALANCES AT JUNE 29, 2001 134,167 1,610 18,423,707 921 62,519 (156,377) (91,327)
Net loss -- -- -- -- -- (1,616) (1) (1,616)
--------- -------- ------------ ----------- --------- ---------- ----------
PREDECESSOR COMPANY
BALANCES AT SEPTEMBER 29,
2001 134,167 1,610 18,423,707 921 62,519 (157,993) (92,943)
Cancellation of former equity
under the Plan of
Reorganization (134,167) (1,610) (18,423,707) (921) (62,519) 157,993 92,943
Issuance of new equity interest in
connection with emergence
from Chapter 11 -- -- -- -- 30,179 -- 30,179
Issuance of new Series M
common stock in connection
with emergence from Chapter 11 -- -- 100 -- -- -- --
--------- -------- ------------ ----------- --------- ---------- ----------
SUCCESSOR COMPANY
BALANCES AT
SEPTEMBER 29, 2001 -- -- 100 -- 30,179 -- 30,179
Issuance of new Series C
common stock -- -- 3,922,280 39 (39) -- --
Series C common stock held in
constructive trust -- -- 6,077,720 61 (61) -- --
Income tax refund recorded as
paid-in capital -- -- -- -- 18,370 -- 18,370
Net income -- -- -- -- -- 1,264 1,264
--------- -------- ------------ ----------- --------- ---------- ----------
SUCCESSOR COMPANY
BALANCES AT JUNE 28, 2002 -- -- 10,000,100 100 48,449 1,264 49,813
Issuance of new Series C common
stock -- -- 946,970 9 (9) -- --
Series C common stock held in
constructive trust -- -- (946,970) (9) 9 - --
Liquidation and plan reserve
adjustment recorded as paid-in
capital -- -- -- -- 400 -- 400
Claims reserve adjustment recorded
as paid-in capital -- -- -- -- 506 -- 506
Net loss -- -- -- -- -- (1,814) (1,814)
--------- -------- ------------ ----------- --------- ---------- ----------
SUCCESSOR COMPANY
BALANCES AT JUNE 27, 2003 -- $ -- 10,000,100 $ 100 - $ 49,355 $ (550) $ 48,905
========= ======== ============ =========== ========= ========== ==========
(1) Net loss before fresh-start adjustments and extraordinary item relating to
gain on forgiveness of debt.
See accompanying notes to consolidated financial statements
F-5
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEAR THREE MONTHS
ENDED ENDED
JUNE 29, SEPTEMBER 29,
2001 2001
PREDECESSOR CO.
---------------------------
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(179,208) $ 156,377
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Fresh-Start adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (18,863)
Extraordinary item - Gain on forgiveness of debt. . . . . . . . . . . . . . . . . . . . . . . -- (139,130)
Tax refund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Loss (Gain) on sale of assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,799 748
Minority interests in income of consolidated subsidiaries. . . . . . . . . . . . . . . . . (141) 50
Losses (earnings) in affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,427 (145)
Restructuring charges, goodwill and asset
impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,751 --
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,753 --
Change in assets and liabilities:
Increase (decrease) in receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . 34,216 1,396
Increase (decrease) in inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . 64,444 584
Increase (decrease) in prepaid expenses, notes receivable and other current
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,841 903
Increase (decrease) in notes receivable and other assets. . . . . . . . . . . . . . . . 11,426 (95)
Decrease in accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24,245) (2,216)
Increase (decrease) in accrued expenses and other liabilities . . . . . . . . . . . . . (22,308) 1,527
Payment and other changes in Plan obligations . . . . . . . . . . . . . . . . . . . . . -- --
Decrease in long term debt and floor plan . . . . . . . . . . . . . . . . . . . . . . . (156,365) --
Increase in liabilities subject to compromise under reorganization
proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,756 --
---------- ---------------
Net cash provided by (used in) operating activities. . . . . . . . . . . . . . . . . 9,146 1,136
---------- ---------------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . 4,701 --
Proceeds from sale of assets held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Purchases of property, plant and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . (1,239) (76)
Dividends from unconsolidated affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Investment in affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
---------- ---------------
Net cash provided by (used in) investing activities. . . . . . . . . . . . . . . . . 3,462 (76)
---------- ---------------
Cash flows from financing activities:
Participation in floor plan payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,503 --
Borrowings under floor plan payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,198 9,368
Repayments of floor plan payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (118,217) (12,843)
Proceeds from long-term debt borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 214
Principal payments of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,171) (99)
Change in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,297) (4,563)
Redemption of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,500) --
Payment of preferred stock dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (521) --
---------- ---------------
Net cash provided by (used in) financing
activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34,001) (7,923)
---------- ---------------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . (21,393) (6,863)
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . 43,570 22,177
---------- ---------------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,177 $ 15,314
========== ===============
Supplemental Cash Flow Information
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64 $ 25
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,031 233
========== ===============
Non-cash investing and financing activities:
Sale of assets in exchange for debt reduction . . . . . . . . . . . . . . . . . . . . . . . . $ 5,666 $ --
Stock issuance recorded as reduction in paid in capital . . . . . . . . . . . . . . . . . . . -- --
========== ===============
NINE MONTHS YEAR
ENDED ENDED
JUNE 28, JUNE 27,
2002 2003
SUCCESSOR CO.
-------------------------
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,264 $ (1,814)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Fresh-Start adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Extraordinary item - Gain on forgiveness of debt. . . . . . . . . . . . . . . . . . . . . . . -- --
Tax refund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,370
Loss (Gain) on sale of assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 (77)
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448 642
Minority interests in income of consolidated subsidiaries. . . . . . . . . . . . . . . . . 249 242
Losses (earnings) in affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (409) (606)
Restructuring charges, goodwill and asset
impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Change in assets and liabilities:
Increase (decrease) in receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . (396) 146
Increase (decrease) in inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . (4,122) (3,019)
Increase (decrease) in prepaid expenses, notes receivable and other current
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,770 (151)
Increase (decrease) in notes receivable and other assets. . . . . . . . . . . . . . . . 149 (1)
Decrease in accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,097) (23)
Increase (decrease) in accrued expenses and other liabilities . . . . . . . . . . . . . (4,684) (2,558)
Payment and other changes in Plan obligations . . . . . . . . . . . . . . . . . . . . . 1,081 (2,436)
Decrease in long term debt and floor plan . . . . . . . . . . . . . . . . . . . . . . . -- --
Increase in liabilities subject to compromise under reorganization
proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
------------- ----------
Net cash provided by (used in) operating activities. . . . . . . . . . . . . . . . . 12,641 (9,655)
------------- ----------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . 3 522
Proceeds from sale of assets held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . 581 1,107
Purchases of property, plant and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . (155) (407)
Dividends from unconsolidated affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . 272 222
Investment in affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (31) (296)
------------- ----------
Net cash provided by (used in) investing activities. . . . . . . . . . . . . . . . . 670 1,148
------------- ----------
Cash flows from financing activities:
Participation in floor plan payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Borrowings under floor plan payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,382 10,100
Repayments of floor plan payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21,315) (23,963)
Proceeds from long-term debt borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . 275 --
Principal payments of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (299) (443)
Change in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,582 5,453
Redemption of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Payment of preferred stock dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
------------- ----------
Net cash provided by (used in) financing
activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,625 (8,853)
------------- ----------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . 16,936 (17,360)
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . 15,314 32,250
------------- ----------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,250 $ 14,890
============= ==========
Supplemental Cash Flow Information
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 296 $ 360
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 850 926
============= ==========
Non-cash investing and financing activities:
Sale of assets in exchange for debt reduction . . . . . . . . . . . . . . . . . . . . . . . . $ 442 $ --
Stock issuance recorded as reduction in paid in capital . . . . . . . . . . . . . . . . . . . 100 --
============= ==========
See accompanying notes to consolidated financial statements.
F-6
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) REORGANIZATION (IN 2001) AND BASIS OF REPORTING
REORGANIZATION
On January 11, 2001 (the "Petition Date"), American Homestar
Corporation and Subsidiaries (the "Company") and twenty-one (21) of its
subsidiaries filed separate voluntary petitions for reorganization under Chapter
11 of the United States Bankruptcy Code ("Chapter 11") in the United States
Bankruptcy Court for the Southern District of Texas (the "Bankruptcy Court"). On
August 14, 2001, the Bankruptcy Court confirmed the Third Amended Joint Plan of
Reorganization, (the "Plan"), of the Company and its subsidiaries. On October 3,
2001, all conditions required for the effectiveness of the Plan were met, and
the Plan became effective ("Effective Date"), and the Company and its
subsidiaries emerged from bankruptcy.
SUMMARY OF PLAN
Under the Plan, the Company maintained ongoing business operations
primarily in Texas, Louisiana and Oklahoma, and conducted sales to independent
dealers in New Mexico, Arkansas and Colorado. The Company continued use of the
manufacturing facilities in North Texas and the operation of approximately 40
retail locations. Moreover, through affiliated entities that were not subject to
the Plan, the Company continued its insurance, financial services and
transportation lines of business.
Treatment of Equity: Under the terms of the Plan, all equity interests in
the Company were cancelled as of the Effective Date, and all holders of
outstanding shares of Company stock, which had previously traded under the
symbols HSTR and HSTRQ, lost all rights to equity interests in and to the
reorganized Company. Under the Plan, the Company has the authority to issue 15
million shares of new Series C common stock and is required to issue 10 million
shares of Series C common stock to its general unsecured creditors. Pursuant to
the exemption set forth in Section 1145 of the Bankruptcy Code, the Company
issued new shares of Series C common stock to persons holding allowed unsecured
claims in the Company's bankruptcy case and shares of Series M common stock to
management under an incentive program. The Company has issued 10 million shares
of Series C common stock and 100 shares of Series M common stock. As of June
27, 2003, 4,869,250 shares of Series C common stock had been issued to specific
shareholders with allowed claims and 5,130,750 shares were held in constructive
trust for the benefit of shareholders to be determined in name and amount as the
claims process is completed. The Company also has the authority to issue 7.5
million shares of Series M common stock to management, 100 shares of which had
been issued as of June 27, 2003 and 4,999,900 shares underlie options authorized
under the Company's 2001 Management Incentive Program. Options for 4,899,900
shares have been approved and granted at an exercise price of $1.35 per share.
These options vest seven years from the date of grant and may vest earlier (up
to 20% per year) if certain annual performance criteria established by the Board
of Directors are met. As of June 27, 2003, options for 969,980 shares were
vested.
Treatment of Administrative and Priority Claims (other than tax claims):
The Bankruptcy Code sets forth various types of claims that are entitled to
priority treatment. These priority claims include, among others, the costs of
administration incurred during the bankruptcy case, certain consumer claims and
certain employee claims. The priority claims that are allowed by the Bankruptcy
Code will be paid in cash in full.
Tax Claims: Our Plan allows certain tax claims to be paid over a period of
up to 72 months following the date of the assessment of those taxes. The Plan
authorizes the Company and its subsidiaries to pay tax claims over a period of
up to 60 months, with interest.
Unsecured Claims: Holders of unsecured claims of $10,000 or less were given
varying options, depending upon the entity owing the unsecured claim. In
general, most holders of such claims are entitled to receive a small payment in
cash (typically 10% or 20% of the amount of their claim, depending on the entity
allowing such claim). Certain of the Company's affiliated entities have
discontinued or will discontinue doing business under the terms of the Plan.
Holders of unsecured claims against those entities could accept a pro rata
distribution in three years when the liquidation value of the subsidiary is
determined. Very few creditors have elected this option. The typical holder of
an unsecured claim of more than $10,000 will receive Series C common stock in
the Successor Company. The stock will be issued solely by the Company, without
regard to which subsidiary actually owing the claim.
F-7
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Miscellaneous Secured Claims: The Company was given the option to return
the collateral for secured claims or to pay secured claims over an extended
period of time, with interest.
Secured Claims by Primary Lender: As part of the Plan, the Company and
several of its subsidiaries entered into a new financing arrangement with the
Company's principal secured lender. The arrangement provided for substantial
debt forgiveness by the secured lender and for the extension of a 36-month loan
by the secured lender. The new loan is secured by substantially all of the
Company's inventory and real estate and by certain other assets (including
certain specified cash deposits, totaling approximately $4.2 million at June 28,
2002 and $0.6 million at June 27, 2003, which are included in restricted cash on
the balance sheet included in the Company's financial statements). The inventory
credit line originally provided for borrowings up to a maximum limit of $38
million, although the available amount under the loan varied based on various
covenants and other requirements. Maximum borrowings peaked at approximately $21
million. In June 2003, American Homestar amended this inventory financing
agreement with the lender to allow for a pay-down, using approximately $5.7
million held by the lender in a restricted cash collateral account. Under the
financing agreement, all net cash proceeds from the sale or lease of the
Company's idle facilities have been deposited into the cash collateral account
and those funds have been otherwise unavailable to the Company. Proceeds from
the future sale or lease of idle facilities will also be available for further
debt reduction, under certain circumstances, at the Company's option. As part
of this amendment, maximum borrowings under the inventory credit line were also
voluntarily reduced to $12 million. The loan is secured by substantially all of
the Company's inventory and real estate and by certain other assets. At June 27,
2003 the amount outstanding was approximately $6.8 million.
BASIS OF REPORTING
Upon emergence from Chapter 11, the Company adopted the provisions of
Statement of Position No. 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("Fresh-Start Reporting") as
promulgated by the AICPA. Accordingly, all assets and liabilities have been
restated to reflect their reorganization value, which approximates their fair
value at the Effective Date. In addition, the accumulated deficit of the Company
was eliminated and its capital structure was recast in conformity with the Plan,
and the Company has recorded the effects of the Plan and Fresh-Start Reporting
as of September 29, 2001. Activity between September 29, 2001, the date of the
Consolidated Fresh-Start Balance Sheet, and October 3, 2001, the Effective Date
of the Plan, was not material. The adjustment to eliminate the accumulated
deficit totaled $158 million of which $139 million was forgiveness of debt and
$19 million was from Fresh-Start adjustments. The results of operations and cash
flows for the three months ended September 29, 2001 include operations prior to
the Company's emergence from Chapter 11 proceedings, which do not take into
account the effects of Fresh-Start Reporting (the Company being referred to
herein as "Predecessor Company" for periods prior to September 29, 2001). The
results of operations and cash flows for the nine months ended June 28, 2002
include operations subsequent to the Company's emergence from Chapter 11
proceedings and reflect the on-going effects of Fresh-Start Reporting (the
Company being referred to herein as "Successor Company" for periods subsequent
to September 29, 2001). As a result, the results of operations and cash flows
for the twelve months ended June 27, 2003 for the Successor Company are not
comparable to the results of operations and cash flows for the twelve months
ended June 28, 2002, as the earlier period includes three months of Predecessor
Company operations and cash flows, which do not reflect the effects of
Fresh-Start Reporting, and nine months of Successor Company operations and cash
flows, which do reflect the effects of Fresh-Start Reporting.
The reorganization value of the Company's common equity of approximately
$30 million was determined by an independent valuation and financial specialist
after consideration of several factors and by using various valuation methods
including appraisals, cash flow multiples, price/earnings ratios and other
relevant industry information. The reorganization value of the Company has been
allocated to various asset categories pursuant to Fresh-Start accounting
principles.
F-8
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DEBT DISCHARGE AND FRESH START REPORTING The effects of the Plan on the
Predecessor Company's unaudited balance sheet at September 29, 2001 were as
follows (in thousands, except per share information):
September 29, Debt Fresh-Start Reorganized
2001 Discharge Entries Balance Sheet
-----------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $ 19,767 $ $ (4,453) $ 15,314
Cash - reserved for claims. . . . . . . . . . . . . . . . . . -- 4,453 4,453
Cash - restricted . . . . . . . . . . . . . . . . . . . . . . 8,563 8,563
Accounts receivable - trade, net. . . . . . . . . . . . . . . 2,251 2,251
Accounts receivable - other, net. . . . . . . . . . . . . . . 332 332
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 25,453 (2,569) 22,884
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . 1,201 1,201
Notes receivable. . . . . . . . . . . . . . . . . . . . . . . 285 285
Other current assets. . . . . . . . . . . . . . . . . . . . . 1,076 1,076
-----------------------------------------------------------
Total current assets. . . . . . . . . . . . . . . . . . 58,928 -- (2,569) 56,359
-----------------------------------------------------------
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 383 383
Investments in affiliates, at equity . . . . . . . . . . . . . . 3,037 3,037
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . 321 321
Property, plant and equipment. . . . . . . . . . . . . . . . . . 22,025 (11,562) 10,463
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . 6,043 6,043
-----------------------------------------------------------
$ 90,737 -- $ (14,131) $ 76,606
===========================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Floor plan payable. . . . . . . . . . . . . . . . . . . . . . $ 19,622 $ 19,622
Current installments of notes payable . . . . . . . . . . . . 331 331
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . 2,412 2,412
Accrued salaries and benefits . . . . . . . . . . . . . . . . 825 825
Accrued federal and state taxes payable . . . . . . . . . . . 56 56
Other reserves. . . . . . . . . . . . . . . . . . . . . . . . 2,069 3,073 5,142
Other taxes . . . . . . . . . . . . . . . . . . . . . . . . . 653 653
Warranty reserve. . . . . . . . . . . . . . . . . . . . . . . 2,145 2,145
Customer deposits . . . . . . . . . . . . . . . . . . . . . . 922 922
Accrued other liabilities . . . . . . . . . . . . . . . . . . 3,687 3,687
Deferred income . . . . . . . . . . . . . . . . . . . . . . . 337 337
Liquidation and plan reserve. . . . . . . . . . . . . . . . . -- 1,877 1,877
Claims reserve. . . . . . . . . . . . . . . . . . . . . . . . -- 4,453 4,453
Initial distribution payable. . . . . . . . . . . . . . . . . -- 2,100 2,100
-----------------------------------------------------------
Total current liabilities . . . . . . . . . . . . . . . 33,059 9,626 1,877 44,562
-----------------------------------------------------------
Notes payable, less current installments . . . . . . . . . . . . 1,149 1,149
Minority interest in consolidated subsidiary . . . . . . . . . . 716 716
Liabilities subject to compromise under reorganization
proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 148,756 (148,756) --
Shareholders' Equity (Deficit):
Preferred stock, no par value; 5,000,000 shares authorized,
509,167 shares issued and outstanding. . . . . . . . . . . 1,610 (1,610) --
Common stock, $0.05 par value; 50,000,000 shares authorized,
18,423,707 shares issued and outstanding . . . . . . . . . 921 (921) --
Common stock series C, par value $0.01 (15,000,000 shares
authorized, 10,000,000 shares issued). . . . . . . . . . . -- --
Common stock series M, par value $0.01 (7,500,000 shares
authorized, 100 shares outstanding). . . . . . . . . . . . -- --
Additional paid in capital. . . . . . . . . . . . . . . . . . 62,519 (32,340) 30,179
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . (157,993) 139,130 18,863 --
-----------------------------------------------------------
Total Shareholders' Equity (Deficit). . . . . . . . . . (92,943) (16,008) 30,179
-----------------------------------------------------------
$ 90,737 $ -- $ (14,131) $ 76,606
===========================================================
F-9
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) SIGNIFICANT RISKS AND MANAGEMENT'S PLANS
Prior to its emergence from Chapter 11 proceedings on October 3, 2001 (see
Note 1), the Company had incurred significant losses from operations. These
losses stemmed from several factors as a direct or indirect result of growing
industry over-capacity. Steadily declining retail sales of new homes per store
and declining new home orders at the Company's manufacturing facilities
ultimately led to sales levels which were insufficient to cover the fixed costs
of the Company's then national operations. In addition, the Company was called
upon to repurchase significant amounts of inventory from independent dealers,
which gave rise to increased losses of a cyclical nature. The Company was also
experiencing increased debt servicing costs relating to its senior unsecured
debt.
Management believes that the restructuring initiatives completed through
October 3, 2001 and new initiatives since that date have positioned the Company
for a return to profitability in the future. However, the Company's ability to
attain profitability in the future is dependent upon many factors including, but
not limited to, general economic conditions in the Company's principal market
areas as well as factors which drive housing demand. These include, but are not
limited to, consumer confidence and new job formation. The Company's performance
is further affected by such factors as the availability of alternative housing
(site-constructed homes and apartments), the availability of affordable retail
or mortgage financing and general industry conditions and competition.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND GENERAL
The consolidated financial statements include the accounts of American
Homestar Corporation and its majority-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Certain amounts previously reported have been reclassified to conform with the
2003 presentation. The Company also owns a 50% interest in two financing joint
ventures (Homestar 21st, LLC and American Homestar Mortgage, L.P.) and a 49.5%
interest in Humble Springs LTD, a land development joint venture, which are
accounted for under the equity method of accounting.
The Company's fiscal year ends on the Friday closest to June 30 and each
interim period ends on the Friday closest to the end of the respective calendar
period.
ACCOUNTING ESTIMATES
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the period. Actual results could differ from those
estimates.
Significant estimates were made to determine the following amounts
reflected on the Company's consolidated balance sheets:
- Property Plant and Equipment, according to provisions for
"Fresh-Start" Reporting, were reflected at their estimated fair market
value at September 29, 2001 and at cost for additions subsequent to
September 29, 2001, less accumulated depreciation for the period
subsequent to September 29, 2001. The determination of periodic
depreciation expense requires an estimate of the remaining useful
lives of each asset.
- Assets Held For Sale are reflected at estimated fair market value.
- Warranty Reserves include an estimate of all future warranty-related
service expenses that will be incurred as to all homes previously
sold, which are still within the one-year warranty period. These
estimates are based on average historical warranty expense per home,
applied to the number of homes
F-10
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
that are still under warranty.
- Reserve for future repurchase losses reflects management's estimate of
both repurchase frequency and severity of net losses, related to
agreements with various financial institutions and other credit
sources to repurchase manufacturing homes sold to independent dealers
in the event of a default by the independent dealer or its obligation
to such credit sources. Such estimates are based on historical
experience.
- Liquidation and Plan Reserve reflects management's estimate of all
costs and expenses to be incurred in administering and satisfying plan
obligations as well as the net cost to complete the liquidation of all
non-core operations.
- Claims Reserve reflects management's estimate of the cash required to
satisfy all remaining priority, tax, administrative and convenience
class claims. This reserve does not include the remaining initial
distribution that is reflected in another liability account, has been
escrowed, and is not subject to estimation.
REVENUE RECOGNITION
Retail sales are recognized once full cash payment is received and the home
has been delivered to the customer.
Manufacturing sales to independent dealers and subdivision developers are
recognized as revenue when the following criteria are met:
- there is a firm retail commitment from the dealer;
- there is a financial commitment (e.g. an approved floor plan source,
cash or cashiers check received in advance or, in the case of certain
subdivision developers, a financial commitment acceptable to
management);
- the home is completely finished;
- the home is invoiced; and
- the home has been shipped.
The Company also maintains used manufactured home inventory owned by
outside parties and consigned to the Company, for which the Company recognizes a
sales commission when received.
Premiums from credit life insurance policies reinsured by the Company's
credit life subsidiary, Lifestar Reinsurance, Ltd. ("Lifestar"), are recognized
as revenue over the life of the policy term. Premiums are ceded to Lifestar on
an earned basis. Lifestar ceased operations in May 2002.
Agency insurance commissions are recognized when received and acknowledged
by the underwriter as due.
Transportation revenues are recognized after the service has been performed
and invoiced to the customer.
INVENTORIES
Newly manufactured homes are valued at the lower of cost or market, using
the specific identification method. Used manufactured homes are valued at
estimated wholesale prices, not in excess of net realizable value. Raw materials
are valued at the lower of cost or market, using the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, were recorded at cost at June 29, 2001 or,
as required by Fresh-Start Reporting, were reflected at management's estimate of
fair market value at September 29, 2001, and since that date additions
F-11
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
are recorded at cost. Depreciation on property, plant and equipment is provided
by the straight-line method over the estimated useful lives of the related
assets. Leasehold improvements are amortized using the straight-line method over
the useful lives of the improvements or lease periods, whichever is shorter. The
Company has 4 manufacturing plants and several non-core retail sales centers
that are not in operation which are classified as assets held for sale and are
reflected at management's estimate of net realizable value.
The Company evaluates the recoverability of long-lived assets not held for
sale by measuring the carrying value of the assets against the estimated
undiscounted future cash flows in accordance with SFAS No. 144, which superceded
SFAS No. 121. At the time such evaluations indicate that the undiscounted future
cash flows of certain long-lived assets are not sufficient to recover the
carrying value of such assets, the assets are adjusted to their estimated fair
values. Estimated fair values are determined using the present value of
estimated future cash flows. In conjunction with the SFAS No. 121 analysis
performed in fiscal year 2001, the Company recorded long-term asset impairments
of approximately $38.8 million.
GOODWILL
Goodwill, which represents the excess of purchase price over the fair value
of net assets acquired, was amortized on a straight-line basis over periods
ranging from 10 to 40 years. The Company assesses the recoverability of goodwill
by determining whether the amortization of the goodwill balance over the
remaining useful life can be recovered through undiscounted future operating
cash flows of the acquired operations.
In fiscal year 2000 the Company evaluated the recoverability of long-lived
assets not held for sale by measuring the carrying value of the assets against
the estimated undiscounted future cash flows in accordance with SFAS No. 121. At
the time such evaluations indicate that the undiscounted future cash flows of
certain long-lived assets are not sufficient to recover the carrying value of
such assets, the assets are adjusted to their estimated fair values. Estimated
fair values are determined using the present value of estimated future cash
flows. In conjunction with the SFAS No. 121 analysis performed in fiscal years
2001, the Company recorded a goodwill write-off of approximately $63.9.
INCOME TAXES
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 such 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 included the enactment date. Because of the Company's recent
reorganization, all deferred tax assets (both short term and long term) have
been fully reserved as their realization is contingent upon future taxable
income.
RESERVES FOR FUTURE LOSSES ON CREDIT SALES
The Company makes a current provision for estimated future losses on credit
retail sales where the Company retains risk in the event of customer nonpayment
of installment sales contracts. Typically, the Company's period of exposure to
loss does not exceed the first two installment payments on an individual
contract. The amounts provided for estimated future losses on credit sales are
determined based on the Company's historical loss experience after giving
consideration to current economic conditions. In assessing current loss
experience and economic conditions, management may adjust the reserve for losses
on credit sales related to prior years' installment sales contracts. All
adjustments are recognized currently.
ACCRUED WARRANTY AND SERVICE COSTS
The Company makes a current provision for future service costs associated
with homes sold and for manufacturing defects for a period of one year from the
date of retail sale of the home. The estimated cost of these items is accrued
at the time of sale and is reflected in cost of sales in the consolidated
statements of operations. For the year ended June 29, 2001, the three months
ended September 29, 2001, the nine months ended June 28, 2002 and
F-12
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the year ended June 27, 2003, warranty and service costs were $ 10.6 million,
$0.7 million, $2.0 million and $2.0 million respectively.
EARNINGS PER SHARE
Basic earnings per share is based on the weighted average shares
outstanding without any dilutive effects considered. Diluted earnings per share
reflects dilution from all contingently issuable shares from outstanding
options. Options granted under the Company's 2001 Management Incentive Program
are not reflected in diluted earnings per share as there have been no sales and
no quoted and asked prices for the stock. Per share data for the periods ended
June 29, 2001 and September 29, 2001 have been omitted as the Company was in
bankruptcy during these periods and the amount does not reflect the current
capital structure.
FINANCIAL INSTRUMENTS
Fair value estimates are made at discrete points in time based on relevant
market information. These estimates may be subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. The Company believes that the carrying amounts of
its current assets, current liabilities and long-term debt approximate the fair
value of such items.
CASH EQUIVALENTS
Cash equivalents consist of short-term investments with an original
maturity of three months or less, money market accounts and cash in transit from
financial institutions. Cash in transit from financial institutions presents no
risk to the Company regarding collectibility and is typically received within
two business days of month end.
CONCENTRATION OF CREDIT RISK
The Company maintains cash in several bank accounts which at times exceed
federally insured limits. The Company monitors the financial condition of the
banks where it maintains accounts and has experienced no losses associated with
these accounts.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 addresses financial accounting and reporting
for acquired goodwill and other intangibles. The statement requires that
goodwill not be amortized but instead be tested at least annually for impairment
and expensed against earnings when the implied fair value of a reporting unit,
including goodwill, is less than its carrying amount. SFAS No. 142 was
effective for fiscal years beginning after December 15, 2001, and its adoption
has not had a material impact on our financial condition or results of
operations.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS 143 was effective for financial
statements issued for fiscal years beginning after June 15, 2002, and its
adoption has not had a material impact on our financial condition or results of
operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," as it relates to the accounting for the disposal of a
segment of a business (as previously defined in that Opinion). The provisions of
SFAS 144 were effective for financial statements issued for fiscal years
beginning after December 15, 2001, and its adoption has not had a material
impact on our financial condition or results of operations.
F-13
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In May 2002, the FASB issued Statement of Financial Accounting Standards
No. 145 ("SFAS 145"), "Rescission of FASB Statements No. 4, 44 and 64, Amendment
of FASB Statement No. 13, and Technical Corrections." This Statement rescinds
FASB Statements No. 4, Reporting Gains and Losses from Extinguishment of Debt,
and an amendment of Statement No. 4 and FASB Statement No. 64, Extinguishments
of Debt Made to Satisfy Sinking-Fund Requirements. This Statement also rescinds
FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers. This
Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. SFAS 145 is effective
for fiscal years beginning after May 15, 2002. We do not expect the adoption of
SFAS 145 will have a material effect on our financial condition or results of
operations.
In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146 ("SFAS 146"), "Accounting for Costs Associated with Exit or Disposal
Activities." This Statement addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies Emerging Issues
Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." SFAS 146 is effective for exit or disposal
activities initiated after December 31, 2002. We do not expect the adoption of
SFAS 146 will have a material effect on our financial condition or results of
operations.
In December 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure," which amends SFAS 123,
"Accounting for Stock-Based Compensation" to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based compensation. In addition, this statement amends the disclosure
requirements of SFAS 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. We
will continue to account for stock-based compensation using the intrinsic method
as permitted by SFAS 123 and prominently disclose the additional information
required by SFAS 148 in our annual and interim reports.
In January 2003, the FASB issued FASB Interpretation No. (FIN) 46,
Consolidation of Variable Interest Entities. This interpretation provides
guidance on the identification of, and financial reporting for, variable
interest entities. Variable interest entities are entities that lack the
characteristics of a controlling financial interest or lack sufficient equity to
finance its activities without additional subordinated financial support. FIN 46
requires a company to consolidate a variable interest entity if that company is
obligated to absorb the majority of the entity's expected losses or entitled to
receive the majority of the entity's residual returns, or both. FIN 46 also
requires disclosures about variable interest entities that a company is not
required to consolidate but in which it has a significant variable interest. FIN
46 is applicable immediately to variable interest entities created after January
31, 2003. For all variable interest entities created prior to February 1, 2003,
FIN 46 is applicable to periods beginning after June 15, 2003. We do not expect
that the adoption of FIN 46 will have a material effect on our financial
position or results of operation.
(4) RESTRUCTURING CHARGES, GOODWILL AND ASSET IMPAIRMENT
Fiscal 2001 Restructuring.
In August 2000, the Company idled its Lynn, Alabama manufacturing facility.
As a result, the Company recorded a restructuring charge of approximately
$565,000 and an inventory write-down which approximated $100,000 to cost of
sales in the results of operations.
F-14
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 2000, the Company incurred substantial restructuring charges
just prior to its reorganization as a result of the Company concluding that it
would close or sell all non-core operations and assets. Correspondingly, the
Company made provision for the impairment (total write-off) of goodwill relative
to all non-core operations and for the impairment of other assets (receivables,
and property plant and equipment) used in those operations. Provision was also
made for the other costs and expenses in connection with the closure of all
non-core operations. The table below shows the various components of the
restructuring charge in fiscal 2001:
MANUFACTURING RETAIL
RESTRUCTURINGS (1) RESTRUCTURING (2) CORPORATE (3) TOTAL
-----------------------------------------------------------------
Cost of sales $ 100 $ -- $ -- $ 100
Selling, general and
Administrative -- -- -- --
Restructuring costs:
Goodwill write-off, 61,466 2,436 -- --
Long-term asset
Impairments 19,161 19,688 -- --
Receivable
impairments 3,919 7,633 10,698 --
Other -- -- 14,215 139,216
-----------------------------------------------------------------
Total $ 84,646 $ 29,757 $ 24,913 $139,316
=================================================================
__________________________
1) Restructuring charges relative to the closure of eight manufacturing
plants in Oregon, Idaho, Alabama and North Carolina.
2) Restructuring charges relative to the closure of 58 retail centers in
Oregon, Washington, New Mexico, Colorado, Alabama, Tennessee,
Kentucky, North Carolina and South Carolina.
3) Restructuring charges relative the impairment of receivables and
provision for other costs and expenses associated with the closure of
the above.
During fiscal 2001, the plants that were either closed or idled contributed
$63.5 million in revenues and had an operating income of $0.8 million. During
fiscal 2001, the retail sales centers closed or idled contributed $52.5 million
in revenues and had an operating loss of $7.4 million. Approximately 2,800
employees were affected by the manufacturing facilities closing and idling and
the retail restructuring.
(5) REORGANIZATION COSTS
Prior to the Company's emergence from bankruptcy, professional fees and
similar type expenditures directly relating to the Chapter 11 proceedings were
classified as reorganization costs and were expensed as incurred. Reorganization
costs, primarily professional fees, for the year ended June 29, 2001, and for
the three month period ended September 29, 2001 were $2.8 million and $1.4
million, respectively. Reorganization costs after emergence from bankruptcy have
been charged against the liquidation and plan reserve liability established as a
result of Fresh-Start Reporting at September 29, 2001.
F-15
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) INVENTORIES
A summary of inventories, net of valuation reserves follows (in thousands):
JUNE 28, JUNE 27,
2002 2003
--------- ---------
Manufactured homes:
New. . . . . . . . . . . . . . $ 22,987 $ 22,620
Used . . . . . . . . . . . . . 1,995 1,994
Homesites:
Land . . . . . . . . . . . . . 0 891
Improvements . . . . . . . . . 0 2,345
Furniture and supplies. . . . . . 468 423
Raw materials and work-in-process 1,556 1,752
--------- ---------
Total. . . . . . . . . . $ 27,006 $ 30,025
========= =========
Substantially all the Company's new and used manufactured homes were
pledged as collateral against its floor plan credit facility (see note 12).
(7) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows (in thousands):
USEFUL JUNE 28, JUNE 27,
LIVES 2002 2003
---------- --------- ---------
$ 7,017
Land . . . . . . . . . . . . . . . . . . . . . - $ 6,821
Buildings. . . . . . . . . . . . . . . . . . . 5-30 years 2,573 2,455
Machinery and equipment. . . . . . . . . . . . 5-10 years 430 461
Furniture and equipment. . . . . . . . . . . . 5 years 432 579
Vehicles . . . . . . . . . . . . . . . . . . . 3 years 26 13
Leasehold improvements . . . . . . . . . . . . 5-13 years 287 264
--------- ---------
Total 10,765 10,593
Less accumulated depreciation and amortization 616 1,124
--------- ---------
Property, plant and equipment, net $ 10,149 $ 9,469
========= =========
Substantially all the Company's property, plant and equipment were pledged
as collateral against its floor plan credit facility (see note 12).
(8) ASSETS HELD FOR SALE
Under the Plan, the Company identified certain non-core assets (principally
idle factories in non-core markets) where there were no current intentions to
reactivate these facilities for future core operations. Management estimates the
fair market value of these assets at June 28, 2002 and June 27, 2003 to be
approximately $5.4 million and $ 3.4 million, respectively. The Company has
reported these assets as Assets held for sale and is actively seeking to sell or
lease these properties. Net cash proceeds resulting from such sale or lease will
be deposited in the restricted cash collateral account. The Company sold two
non-core retail sales centers in fiscal 2002 and two non-core manufacturing
plants in fiscal 2003.
F-16
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) PREPAID EXPENSES, NOTES RECEIVABLE AND OTHER ASSETS
A summary of other assets follows (in thousands):
JUNE 28, JUNE 27,
2002 2003
--------- ---------
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . $ 568 $ 390
Notes receivable. . . . . . . . . . . . . . . . . . . . . . . . . 453 577
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251 532
Net cash surrender value of company-owned life insurance. . . . . 75 --
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . 1,347 1,499
Less current portion. . . . . . . . . . . . . . . . . . . . . . . 792 943
--------- ---------
Prepaid expenses, notes receivable and other assets less
current portion . . . . . . . . . . . . . . . . . . . $ 555 $ 556
========= =========
(10) INCOME TAXES
The provision for income taxes related to operations in the consolidated
statements of operations is summarized below (in thousands):
YEAR THREE MONTHS NINE MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 29, SEPTEMBER 29, JUNE 28, JUNE 27,
2001 2001 2002 2003
--------- -------------- ------------- ---------
PREDECESSOR CO. SUCCESSOR CO.
------------------------- ------------------------
Federal-current expense (benefit). $ -- $ 20 $ 295 $ 250
Federal-deferred expense (benefit) 16,239 -- (48) 32
State-current expense (benefit). . -- -- -- --
State-deferred expense (benefit) . -- -- -- --
--------- -------------- ------------- ---------
Total . . . . . . . . . . . . $ 16,239 $ 20 $ 247 $ 282
========= ============== ============= =========
F-17
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company files a consolidated return for federal tax purposes;
accordingly, taxes at statutory rates are computed based on earnings before
earnings in affiliates and minority interests. The provision for income taxes
related to operations varied from the amount computed by applying the U.S.
federal statutory rate as a result of the following:
YEAR THREE MONTHS NINE MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 29, SEPTEMBER 29, JUNE 28, JUNE 27,
2001 2001 2002 2003
---------- --------------- ------------- ----------
PREDECESSOR CO. SUCCESSOR CO.
--------------------------- -------------------------
Computed "expected" tax expense
(benefit). . . . . . . . . . . . . $ (57,261) $ 6,010 $ 473 $ (663)
State income tax, net of federal tax
benefit. . . . . . . . . . . . . . (245) -- -- --
Nondeductible goodwill. . . . . . . . 11,746 -- -- --
Nondeductible restructing cost. . . . 869 7,779 489 --
Carry back of net operating loss
recorded in equity . . . . . . . . 18,370 -- -- --
Other, net. . . . . . . . . . . . . . 2,005 2,100 245 (20)
Increase (decrease) in valuation
allowance. . . . . . . . . . . . . 40,755 (15,869) (960) 965
---------- --------------- ------------- ----------
Total. . . . . . . . . . . . $ 16,239 $ 20 $ 247 $ 282
========== =============== ============= ==========
The Job Creation and Worker Assistance Act of 2002 extended the loss carry
back period for losses generated in fiscal 2001 and 2002. Accordingly, the
Company was eligible for a refund of federal income taxes paid in fiscal years
1997 and 1998. During the year ended June 28, 2002, the Company received such
refund of approximately $18.4 million. The tax refund has been reflected in the
equity section of the Consolidated Balance Sheet in accordance with Fresh-Start
accounting as an addition to Additional paid-in capital. The Company's remaining
net operating loss carry forward from the year June 28, 2002 was offset entirely
by income from discharge of indebtedness as a result of the Company's
reorganization.
F-18
AMERICAN HOMESTAR CORPORATION 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 deferred tax liabilities are presented
below (in thousands):
JUNE 28, JUNE 27,
2002 2003
---------- ----------
Current deferred tax assets:
Uniform capitalization of interest . . . . . . . . . . $ 128 $ 62
Inventory reserve. . . . . . . . . . . . . . . . . . . 252 160
Allowance for doubtful accounts. . . . . . . . . . . . 270 235
Liabilities not deductible until paid. . . . . . . . . 1,266 2,034
---------- ----------
Total before valuation allowance . . . . . . . . . . . 1,916 2,491
Valuation allowance. . . . . . . . . . . . . . . . . . (1,916) (2,491)
---------- ----------
Current deferred tax assets . . . . . . . . . . . . $ -- $ --
========== ==========
Noncurrent deferred tax assets (liabilities):
Goodwill amortization and write-offs . . . . . . . . . $ 14,223 $ 12,940
Plant and equipment, principally due to differences in
depreciation and estimated costs to dispose of
manufacturing facilities . . . . . . . . . . . . . . 12,853 9,066
Impairment of assets . . . . . . . . . . . . . . . . . 8 --
Net operating loss carry forward . . . . . . . . . . . -- 5,468
---------- ----------
Total before valuation allowance . . . . . . . . . . . 27,084 27,474
Valuation allowance. . . . . . . . . . . . . . . . . . (27,084) (27,474)
---------- ----------
Noncurrent deferred tax assets, net. . . . . . . . $ -- $ --
========== ==========
The Company generated a net operating loss for tax purposes in the year
ended June 27, 2003, of $15.6 million. This net operating loss is available to
offset taxable income until June 30, 2023.
In assessing the realizability of deferred income tax assets, the Company
considers whether that it is more likely than not that some portion or all of
the deferred income tax assets will not be realized. The ultimate realization
of deferred income tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences and the net
operating loss become deductible. Due to the recent historical operating
results of the Company, management is unable to conclude on a more likely than
not basis that all deferred income tax assets generated through operating losses
through June 27, 2003 will be realized. Accordingly, the Company has
recognized a full valuation allowance to reduce the net deferred tax asset to an
amount that management believes will more likely than not be realized.
F-19
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) INVESTMENT IN AFFILIATED COMPANIES
Homestar 21, LLC ("Homestar 21") is 50% owned by the Company and 50% owned
by 21st Mortgage, a company not affiliated with the Company. Homestar 21 is a
finance company that specializes in providing chattel and land/home financing to
the Company's customers. The Company accounts for its investment in Homestar 21
using the equity method. The Company invested $2.4 million in Homestar 21
during fiscal 2000. Summary financial information for Homestar 21, derived from
the audited financial statements of 21st Mortgage, as of the periods indicated
follows (in thousands):
JUNE 28, JUNE 27,
2002 2003
--------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $ 17,494 $ 7,110
========= =========
Total liabilities. . . . . . . . . . . . . . . . . . . . . $ 11,147 $ 191
Shareholders' equity . . . . . . . . . . . . . . . . . . . $ 6,347 $ 6,919
========= =========
Total revenues . . . . . . . . . . . . . . . . . . . . . . $ 2,706 $ 3,119
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 1,107 $ 1,016
========= =========
In May 2002, the Company invested $31,500 to provide one-half of the
initial capitalization of American Homestar Mortgage, L.P. ("Homestar
Mortgage"), a joint venture owned 50% by the Company and 50% by Home Loan
Corporation ("Home Loan"), a Company not affiliated with the Company. Homestar
Mortgage will operate as a mortgage broker/loan originator for ultimate
placement with Home Loan and other mortgage banks. Homestar Mortgage will not
bear any lending risk on loans it originates. Homestar Mortgage obtained its
license and regulatory approval on October 8, 2002 and began operations in
November 2002. The Company accounts for its investment in Homestar Mortgage
using the equity method. Summary of unaudited financial information for Homestar
Mortgage as of and for the period indicated, is as follows (in thousands):
JUNE 28, JUNE 27,
2002 2003
--------- ---------
Total assets. . . . . . . . . . . . . . . . . . . . . . $ 63 $ 263
========= =========
Total liabilities . . . . . . . . . . . . . . . . . . . $ -- $ 5
Owners' equity. . . . . . . . . . . . . . . . . . . . . $ 63 $ 258
========= =========
Total revenues. . . . . . . . . . . . . . . . . . . . . $ -- $ 544
Net income. . . . . . . . . . . . . . . . . . . . . . . $ -- $ 195
========= =========
Subsequent to June 27, 2003 we reached agreement with our venture partner
in Homestar Mortgage to cease operations effective July 31, 2003.
F-20
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March, 2003, the Company invested $50 for a 49.5% interest in Humble
Springs LTD, a land development joint venture. The other partners in the venture
are a land development company and certain of its affiliates, none of whom are
affiliated with the Company. Under the terms of the partnership agreement, the
land developer guarantees all debt of the partnership and the Company provides
for the cash needs of the venture (to a maximum of $547,000) in the form of
additional capital contributions for which it will receive a preferred return
when the development project is completed. As of June 27, 2003, American
Homestar had contributed a total of $296,000. The Company accounts for its
investment in Humble Springs LTD using the equity method. Summary unaudited
financial information for Humble Springs LTD as of and for the period indicated
is as follows (in thousands):
JUNE 28, JUNE 27,
2002 2003
--------- ---------
Total assets. . . . . . . . . . . . . . . . . . . . . . $ -- $ 783
========= =========
Total liabilities . . . . . . . . . . . . . . . . . . . $ -- $ 487
Owners' equity. . . . . . . . . . . . . . . . . . . . . $ -- $ 296
========= =========
Total revenues. . . . . . . . . . . . . . . . . . . . . $ -- $ --
Net income. . . . . . . . . . . . . . . . . . . . . . . $ -- $ --
========= =========
F-21
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) NOTES AND FLOOR PLAN PAYABLE
On October 3, 2001, the Company entered into a floorplan credit facility
with Associates Housing Financial LLC ("Associates") to finance the purchase of
its display models and inventory homes. The balance outstanding at June 28, 2002
was $20.7 million and the balance at June 27, 2003 was $6.8 million. The maximum
allowance under the line of credit is $38 million with various sub-limits for
each category of inventory financed and the line is contractually committed
until October 2, 2004. Two liquidating lines, with a combined balance of $1.4
million, were paid off during the three-month period ended September 27, 2002.
As the Company paid down the liquidating lines, additional borrowing capacity
became available under the revolving lines. The revolving portions of the line
carry an annual interest rate of prime plus 1%. The liquidating portions of the
original line carried no interest for the first six months (which expired April
3, 2002) and thereafter accrued interest at a rate of prime plus 1% per annum
(5.75% at June 28, 2002 and 5.0 % at June 27, 2003).
In June 2003, American Homestar amended this inventory financing agreement
with the lender to allow for a pay-down, using approximately $5.7 million held
by the lender in a restricted cash collateral account. Under the financing
agreement, all net cash proceeds from the sale or lease of the Company's idle
facilities have been deposited into the cash collateral account and those funds
have been otherwise unavailable to the Company. Proceeds from the future sale or
lease of idle facilities will also be available for further debt reduction,
under certain circumstances, at the Company's option. As part of this amendment,
maximum borrowings under the inventory credit line were also voluntarily reduced
to $12 million.
The floor plan payable is secured by substantially all of the Company's
inventory, real estate and by certain other assets (including certain specific
cash deposits, approximately $0.6 million at June 27, 2003 included in
restricted cash). In addition to traditional subjective covenants, there are two
financial covenant tests the Company is required to meet under its floor plan
agreements. One test is floor plan debt compared to total assets (as defined).
The other test is a minimum cash balances requirements. At June 27, 2003 and
for all prior periods as of and after September 29, 2001, the Company was in
compliance with all covenants.
Amounts due under the floor plan credit facility follows (in thousands):
JUNE 28, JUNE 27,
2002 2003
--------- ---------
Floor plan payable . . . . . . . . . . . . . . . . . . . . . . . $ 20,689 $ 6,826
========= =========
F-22
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of notes payable, all to non-financial institutions unless
otherwise noted, with no covenants follows (in thousands):
JUNE 28, JUNE 27,
2002 2003
--------- ---------
Notes payable in monthly installment, including interest of 10.0% due
through August 2008; secured by real property. . . . . . . . . . . . . . 306 276
Note payable to Associates in monthly installments, principal only, due
through July 2002; secured by lot signs and equipment. . . . . . . . . . 20 0
Note payable in monthly installments, including interest of 10.0% due
through November 2010; secured by real property. . . . . . . . . . . . . 131 121
Note payable in monthly installments, including interest of 10.0%, due
through September 2007; secured by real property . . . . . . . . . . . . 106 90
Note payable to an individual and a financial institution in monthly
installments, including interest of 9.5%, due through July 2012; secured
by real property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 85
Note payable in monthly installments, including interest of 8.0%, due
through July 2008; secured by real property. . . . . . . . . . . . . . . 79 0
Bank revolving line of credit, bearing interest at prime plus 1% due
June, 2003; secured by affiliate accounts receivable . . . . . . . . . . 250 0
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 0
--------- ---------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,014 $ 572
Less current installments . . . . . . . . . . . . . . . . . . . . . . . . . 370 70
--------- ---------
Notes payable, less current installments . . . . . . . . . . $ 644 $ 502
========= =========
The aggregate maturities of notes payable for each of the five years and
thereafter as of to June 27, 2003 are as follows (in thousands):
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 70
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . 164
----
. . . . . . . . . . . . . . . . . . . . . . . . $572
====
(13) STOCKHOLDERS' EQUITY
Under the terms of the Plan, all equity interests in the Company were
cancelled as of the Effective Date, and all holders of outstanding shares of
Company stock, which had previously traded under the symbols HSTR and HSTRQ,
lost all rights to equity interests in and to the reorganized Company. Under
the Plan, the Company has the authority to issue 15 million shares of new Series
C common stock and is required to issue 10 million shares of Series C common
stock to its general unsecured creditors. Pursuant to the exemption set forth
in Section 1145 of the Bankruptcy Code, the Company issued new shares of Series
C common stock to persons holding allowed unsecured claims in the Company's
bankruptcy case and shares of Series M common stock to management under an
incentive program. The Company has issued 10 million shares of Series C common
stock and 100 shares of Series M common stock. As of June 28, 2002, 3,922,280
shares of Series C common stock had been issued to specific shareholders with
allowed claims and 6,077,720 shares were held in constructive trust for the
benefit of shareholders to be determined in name and amount as the claims
process is completed. As of June 27, 2003, 4,869,250 shares of Series C common
stock had been issued to specific shareholders with allowed claims and 5,130,750
shares were held in constructive trust for the benefit of shareholders to be
determined in name and amount as the claims process is
F-23
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
completed. The Company also has the authority to issue 7.5 million shares of
Series M common stock to management, 100 shares of which had been issued as of
June 28, 2002 and June 27, 2003 and 4,999,900 shares underlie options authorized
under the Company's 2001 Management Incentive Program. At June 28, 2002 options
for 4,899,900 shares were approved and granted at an exercise price of $1.35 per
share. At June 27, 2003, options for 4,949,900 shares were approved land granted
at an exercise price of $1.35 per share. These options vest seven years from the
date of grant and may vest earlier (up to 20% per year) if certain annual
performance criteria established by the Board of Directors are met. As of June
27, 2003, options for 969,980 shares were vested. No options were exercised to
date.
Activity under the Stock Option Plan was as follows:
WEIGHTED
AVERAGE
OUTSTANDING EXERCISE
OPTIONS PRICE
------------ ---------
Balance, June 30, 2001 . . . . . . . . . . . . . . 0 --
Granted under the plan. . . . . . . . . . . . . 4,949,900 $ 1.35
Balance, June 28, 2002 . . . . . . . . . . . . . . 4,949,900 1.35
Granted under the plan. . . . . . . . . . . . . 50,000 1.35
Canceled. . . . . . . . . . . . . . . . . . . . (100,000) 1.35
Balance, June 27, 2003 . . . . . . . . . . . . . . 4,899,900 1.35
The Company accounts for grants to employees and directors under the
provisions of APB Opinion No. 25 and related interpretations. Had compensation
expense for the Plan been determined based upon the fair value method as
prescribed in SFAS No. 123, the net income (loss) would have changed to the
following pro Forma amounts for the years ended June 28, 2002 and June 27, 2003,
respectively.
YEAR ENDED YEAR ENDED
JUNE 28, JUNE 27,
2002 2003
------------ ------------
Net income (loss), as reported $ 1,264 $ (1,814)
Deduct: total stock-based employee
Compensation expense determined under
fair value based method for all awards, net
of related tax effects (255) (174)
------------ ------------
Net income (loss), pro forma $ 1,009 $ (1,988)
============ ============
Earnings per share
As reported $ 0.13 $ (0.18)
Pro forma 0.10 (0.20)
At June 27, 2003, the Company had 4,899,9000 stock options at an exercise
price of $1.35 per share with a weighted average of 7.4 remaining years
contractual life.
F-24
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of stock options granted in 2002 and 2003 were estimated on
the date of grant using the "minimum value" method as the stock was not trading
during the years ended June 28, 2002 and June 27, 2003 and was not trading on
September 23, 2003. The weighted average fair values and related assumptions
were:
Weighted average fair value . . . . . . . . . . . . . . . . $ 1.35
Market interest rate. . . . . . . . . . . . . . . . . . . . 4.35%
(14) RELATED PARTY BALANCES AND TRANSACTIONS
MOAMCO Properties, Inc. (MOAMCO), an entity owned by the Company's Chief
Executive Officer, owns and leases to the Company, under operating leases, land,
improvements and buildings related to two sales centers at June 29, 2001 and one
sales center at June 28, 2002 and June 27, 2003. During the year ended June 29,
2001, three months ended September 29, 2001, nine months ended June 28, 2002 and
the year ended June 27, 2003, the Company paid MOAMCO approximately $91,000,
$22,000, $67,000 and $79,000, respectively, for these operating leases (see note
15).
(15) COMMITMENTS AND CONTINGENCIES
REPURCHASE AGREEMENTS
The Company has entered into repurchase agreements with various financial
institutions and other credit sources pursuant to which the Company has agreed,
under certain circumstances, to repurchase manufactured homes sold to
independent dealers in the event of a default by such independent dealer on its
obligation to such credit sources. Under the terms of such repurchase
agreements, the Company agrees to repurchase manufactured homes at declining
prices over the periods of the agreements (which generally range from 18 to 24
months).
While repurchase activity is very sporadic and cyclical, the Company
provides for anticipated repurchase loses. As the Company had very few sales of
manufactured homes to independent dealers between the Effective Date and June
29, 2001, there was no potential repurchase obligation at that date. At June 28,
2002 and June 27, 2003, the Company was at risk to repurchase approximately $2.9
million and $1.2 million of manufactured homes respectively, and has provided
for estimated net repurchase losses at approximately $0.2 million at June 28,
2002 and at June 27, 2003.
LEGAL MATTERS
On the Effective Date of the Plan, most pending claims were discharged and
an injunction was issued barring any future claims arising from events that
occurred prior to October 3, 2001. In a few cases, litigation has been
reinstated solely for the purpose of determining the amount of a general
unsecured claim against the Company or a claim to be paid by the Company's
insurers. Since the Effective Date, there are no other pending legal
proceedings, except for routine litigation incidental to the business, which
management believes is not material to its business or financial condition.
SAVINGS PLAN
The Company has adopted the American Homestar Corporation 401(k) Retirement
Plan (the "Savings Plan") whereby all employees of the Company who have
completed six months of service and have reached the age of twenty and one-half
are eligible to participate in the Savings Plan. A Plan Administrator appointed
by the Company administers the Savings Plan. Eligible employees may contribute
a portion of their annual compensation up to the legal maximum established by
the Internal Revenue Service for each plan year. No employee contributions are
invested in securities issued by the Company or its subsidiary companies. The
Company has made no contributions to the Savings Plan since January 2001. During
the year ended June 29, 2001 the Company contributed approximately $39,000 to
the Savings Plan.
F-25
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WORKERS COMPENSATION LIABILITY
The Company has rejected the insurance coverage provided by the Texas
Workers' Compensation Act. While the Company maintains excess indemnity
insurance, the Company's portion of self-insured retention is $250,000 per
occurrence. Management, in assessing loss experience, adjusts its reserve for
losses through periodic provisions. In states other than Texas, the Company is
insured for workers compensation.
LEASES
The Company is obligated under various noncancelable operating lease
agreements with varying monthly payments and varying expiration dates through
March, 2007. Rental expense under operating leases for the years ended June 29,
2001, the three months ended September 29, 2001, the nine months ended June 28,
2002 and the year ended June 27, 2003 were $4,973,000, $410,000, $1,472,000 and
$1,817,000, respectively.
Aggregate annual rental payments due to independent and related parties, on
future lease commitments at June 27, 2003 were as follows (in thousands):
AMOUNTS DUE AMOUNTS DUE TOTAL LEASE
INDEPENDENT PARTIES RELATED PARTIES COMMITMENTS
-------------------- ---------------- ------------
2004 . . . . . . . . $ 1,208 $ 72 $ 1,280
2005 . . . . . . . . 419 - 419
2006 . . . . . . . . 92 - 92
2007 . . . . . . . . 62 - 62
2008 . . . . . . . . -- - --
Thereafter . . . . . -- - --
-------------------- ------------------------------
$ 1,781 $ 72 $ 1,853
==================== ==============================
F-26
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(16) BUSINESS SEGMENTS
The Company operates primarily in three business segments - (i) retail
sales; (ii) manufacturing; and (iii) corporate, which consists of financial
service, transportation services and the corporate group. The following table
summarizes, for the periods indicated, information about these segments (in
thousands):
ADJUSTMENTS/
RETAIL MANUFACTURING CORPORATE ELIMINATIONS TOTAL
--------- --------------- ----------- -------------- ----------
YEAR ENDED JUNE 29, 2001
Revenues from external customers. . $140,500 $ 76,875 $ 24,399 $ -- $ 241,774
Intersegment revenues . . . . . . . -- 59,405 -- (59,405) --
Interest expense. . . . . . . . . . 7,179 2,211 6,421 (4,580) 11,231
Depreciation and amortization . . . 1,578 1,961 6,260 -- 9,799
Segment profit (loss) before
reorganization costs, income
taxes and earnings in affiliates (63,881) (71,961) (14,245) (10,720) (160,807)
Segment assets. . . . . . . . . . . 43,285 34,089 136,606 (117,628) 96,352
Expenditures for segment assets . . 171 735 333 -- 1,239
THREE MONTHS ENDED SEPTEMBER
29, 2001
Revenues from external customers. . $ 18,969 $ 2,138 $ 5,137 $ -- $ 26,244
Intersegment revenues . . . . . . . -- 9,616 -- (9,616) --
Interest expense. . . . . . . . . . 214 -- -- -- 214
Depreciation and amortization . . . 445 274 29 -- 748
Segment profit (loss) before
income taxes and earnings in
affiliates . . . . . . . . . . . (712) 356 (246) 344 (258)
Segment assets. . . . . . . . . . . 32,810 26,676 42,714 (25,594) 76,606
Expenditures for segment assets . . -- 42 34 -- 76
NINE MONTHS ENDED JUNE 28,
2002
Revenues from external customers. . $ 58,022 $ 6,212 $ 18,584 $ -- $ 82,818
Intersegment revenues . . . . . . . -- 33,059 -- (33,059) --
Interest expense. . . . . . . . . . 824 1 -- -- 825
Depreciation and amortization . . . 208 181 59 -- 448
Segment profit (loss) before
income taxes and earnings in a
affiliates . . . . . . . . . . . 48 3,368 (1,169) (896) 1,351
Segment assets. . . . . . . . . . . 35,749 27,020 61,191 (31,211) 92,749
Expenditures for segment assets . . 113 6 36 -- 155
YEAR ENDED JUNE 27, 2003
Revenues from external customers. . $ 59,188 $ 11,621 $ 21,331 $ -- $ 92,140
Intersegment revenues . . . . . . . 0 30,613 -- (30,613) --
Interest expense. . . . . . . . . . 955 -- -- -- 955
Depreciation and amortization . . . 292 245 105 -- 642
Segment profit (loss) before
income taxes and earnings in a
affiliates . . . . . . . . . . . (2,834) 3,664 (2,488) (238) (1,896)
Segment assets. . . . . . . . . . . 25,753 23,971 59,508 (38,297) 70,935
Expenditures for segment assets . . 219 38 150 -- 407
F-27
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intersegment revenues are primarily sales by the manufacturing segment to
the retail segment and are transferred at market price. Earnings in affiliates
in the consolidated statements of operations relates to the financial services
segment. The adjustment to intersegment revenue is made to eliminate
intercompany sales between the manufacturing and retail segments. The interest
expense adjustment is made to eliminate intersegment interest between the
corporate and manufacturing and retail segments and to net the interest expense
on the floor plan credit facility against the interest earned. The segment
assets adjustment is primarily made up of an adjustment to eliminate
subsidiary's equity at the corporate level, a reclass of the floor plan
participation balance and the elimination of intercompany receivables.
(17) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following presents a summary of the unaudited quarterly financial
information for the years ended June 28, 2002 and June 27, 2003 (in thousands):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
--------------- --------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2002 PREDECESSOR CO. SUCCESSOR CO.
- ----------------------------------------------- -----------------------------------------
Revenues . . . . . . . . . $ 26,244 $ 29,057 $ 25,377 $ 28,384 $109,062
Operating income (loss) (132) 1,086 111 734 1,799
Net income (loss). . . . . 156,377 (1) 981 (104) 387 157,641
Earnings (loss) per
share-basic and diluted. N/A $ 0.10 $ (0.01) $ 0.04 $0.13 (2)
2003 UCCESSOR CO.
----------------------------------------------------------
Revenues . . . . . . . . . $ 25,354 $ 21,143 $ 22,849 $ 22,794 $ 92,140
Operating income (loss). . (138) (1,039) (381) 254 (1,304)
Net income (loss). . . . . (455) (1,169) (455) 265 (1,814)
Loss per share-basic
and diluted . . . . . . $ (0.05) $ (0.12) $ (0.05) $ 0.03 $ (0.18)
_______________________________
(1) Includes Fresh-Start adjustment gain of $19 million and extraordinary gain
of $139 million related to debt forgiveness
(2) Based on net income of $1.3 million for nine month period ended June 28,
2002
F-28
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS
-------------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION YEAR EXPENSES ACCOUNTS OTHER DEDUCTIONS YEAR
- ------------------------------------------ ----------- ----------- ------ ------------ -----------
Year ended June 29, 2001
Warranty and service costs $ 8,749 $ 10,587 $ -- $ -- $ 16,701 $ 2,635
Restructuring reserve $ 7,458 $ 565 $ -- $ -- $ 8,023 $ --
Reorganization costs $ -- $ 179,942 (1) $ -- $ -- $ 176,538 $ 3,404
Three months ended
September 29, 2001
Warranty and service costs $ 2,635 $ 678 $ -- $ -- $ 1,168 $ 2,145
Reorganization costs $ 3,404 $ -- $ -- $ -- $ 1,527 $ 1,877
Nine months ended June 28,
2002
Warranty and service costs $ 2,145 $ 2,016 $ -- $ -- $ 2,343 $ 1,818
Reorganization costs $ 1,877 $ -- $ -- $ -- $ (1,749) $ 3,626
Year ended June 27, 2003
Warranty and service costs $ 1,818 $ 2,024 $ -- $ -- $ 1,893 $ 1,687
Reorganization costs $ 3,626 $ -- $ -- $ -- $ 2,357 $ 1,269
_______________________________
(1) Amount represents reorganization costs related to liquidation of non-core
operational and Plan obligation costs accrued in December 2000.
F-29
EXHIBIT INDEX
2.1 Debtors' Third Amended and Restated Plan of Reorganization
(Incorporated by reference to Exhibit 99.2 to the Company's
Current Report on Form 8-K filed on January 8, 2002)
3.1 Amended and Restated Articles of Incorporation of the Company
(Incorporated by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q filed on May 10, 2002)
3.2 Amended and Restated Bylaws of the Company (Incorporated by
reference to Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q filed on May 10, 2002)
3.3 Charter for the Audit Committee of the Company, dated September
19, 2001 (Incorporated by reference to the Company's Annual
Report on Form 10-K filed on September 24, 2002)
3.4 Charter for the Compensation Committee of the Company, dated
September 18, 2001 (Incorporated by reference to the Company's
Annual Report on Form 10-K filed on September 24, 2002)
10.1 Employment Agreement, effective as of October 3, 2001, by and
between the Company and Finis F. Teeter (Incorporated by
reference to the Company's Annual Report on Form 10-K filed on
September 24, 2002)
10.2 American Homestar Corporation 2001 Management Incentive Program,
effective as of October 3, 2001 (Incorporated by reference to the
Company's Annual Report on Form 10-K filed on September 24, 2002)
10.3 Non-Qualified Stock Option Agreement, effective as of October 3,
2002, by and between the Company and Finis F. Teeter
(Incorporated by reference to the Company's Annual Report on Form
10-K filed on September 24, 2002)
10.4 Non-Qualified Stock Option Agreement, effective as of October 3,
2002, by and between the Company and Craig A. Reynolds
(Incorporated by reference to the Company's Annual Report on Form
10-K filed on September 24, 2002)
10.5 Non-Qualified Stock Option Agreement, effective as of October 3,
2002, by and between the Company and Charles N. Carney, Jr.
(Incorporated by reference to the Company's Annual Report on Form
10-K filed on September 24, 2002)
10.6 Non-Qualified Stock Option Agreement, effective as of October 3,
2002, by and between the Company and James J. Fallon
(Incorporated by reference to the Company's Annual Report on Form
10-K filed on September 24, 2002)
10.7* Non-Qualified Stock Option Agreement, effective as of October 3,
2002, by and between the Company and Jackie Holland
14.1 American Homestar Corporation Code of Business Conduct and
Ethics, adopted on December 17, 2002 (Incorporated by reference
to the Company's Quarterly Report on Form 10-Q filed on May 2,
2003)
16.1 Letter Regarding Change in Certifying Accountant (Incorporated by
reference to Exhibit 16.1 to the Company's Current Report on Form
8-K filed on January 25, 2002)
21.1* Subsidiaries of American Homestar Corporation
31.1* Certification pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a))
for Finis F. Teeter, Chief Executive Officer of the Company.
31.2* Certification pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a))
for Craig A. Reynolds, Chief Financial Officer
32.1** Certifications pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for
Finis F. Teeter, Chief Executive Officer, and Craig A. Reynolds,
Chief Financial Officer of the Company.
_______________
* Filed herewith
** Furnished herewith