UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 26, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File Number 0-24210
AMERICAN HOMESTAR CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 76-0070846
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
2450 SOUTH SHORE BOULEVARD, SUITE 300, LEAGUE CITY, TEXAS 77573
(Address of principal executive offices, including zip code)
(281) 334-9700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes [ ] No [X]
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 May 7, 2004 the registrant had 67,600 shares of Series M Common Stock, par
value $.01 per share, and 9,877,531 shares of Series C Common Stock, par value
$.01 per share, issued and outstanding, and 122,469 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 is
completed.
PART I - FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements
Consolidated Statements of Operations for the three months
and nine months ended March 26, 2004 and March 28, 2003. . . . . . . 2
Consolidated Balance Sheets
as of March 26, 2004 and June 27, 2003 . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows
for the nine months ended March 26, 2004 and March 28, 2003. . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk. . . . . 23
Item 4. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . 23
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 24
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
CERTIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR SHARE INFORMATION) (UNAUDITED)
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
MARCH 26, MARCH 28, MARCH 26, MARCH 28,
2004 2003 2004 2003
-------------- -------------- ------------- -------------
Revenues:
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . 16,333 $ 18,160 $ 49,855 $ 52,990
Other revenues . . . . . . . . . . . . . . . . . . . . . . 774 844 2,378 2,488
-------------- -------------- ------------- -------------
Total revenues . . . . . . . . . . . . . . . . . . . . . 17,107 19,004 52,233 55,478
Cost of sales Cost of sales. . . . . . . . . . . . . . . . . 11,697 12,729 35,083 36,439
-------------- -------------- ------------- -------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . 5,410 6,275 17,150 19,039
Selling, general and administrative. . . . . . . . . . . . . 6,025 6,728 20,035 21,241
Gain on sale of assets . . . . . . . . . . . . . . . . . . . (971) (6) (1,078) (6)
-------------- -------------- ------------- -------------
Operating income (loss). . . . . . . . . . . . . . . . . 356 (447) (1,807) (2,196)
Interest expense . . . . . . . . . . . . . . . . . . . . . . (63) (221) (264) (778)
Other income . . . . . . . . . . . . . . . . . . . . . . . . 54 68 536 310
-------------- -------------- ------------- -------------
Income (loss) before income taxes,
earnings in affiliates and discontinued
operations . . . . . . . . . . . . . . . . . . . . . . . 347 (600) (1,535) (2,664)
Income tax expense (benefit) . . . . . . . . . . . . . . . - (2) (220) (2)
Earnings (loss) in affiliates. . . . . . . . . . . . . . . (122) 120 (136) 379
-------------- -------------- ------------- -------------
Net income (loss) before discontinued operations . . . . . . $ 225 $ (478) $ (1,451) $ (2,283)
Discontinued operations, net of taxes, minority
interests. . . . . . . . . . . . . . . . . . . . . . . . . (4) 23 136 204
-------------- -------------- ------------- -------------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . $ 221 $ (455) $ (1,315) $ (2,079)
============== ============== ============= =============
Earnings (loss) per share - basic and diluted: . . . . . . . $ 0.02 $ (0.05) $ (0.13) $ (0.21)
============== ============== ============= =============
Weighted average shares outstanding - basic and
diluted: . . . . . . . . . . . . . . . . . . . . . . . . 10,002,710 10,000,100 10,000,970 10,000,100
============== ============== ============= =============
See accompanying notes to consolidated financial statements
2
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)
MARCH 26, JUNE 27,
2004 2003
(UNAUDITED) (AUDITED)
----------- ----------
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . $ 15,285 $ 14,473
Cash - reserved for claims . . . . . . . . . . . . . . . . . . . . . . 923 4,341
Cash - restricted. . . . . . . . . . . . . . . . . . . . . . . . . . . 237 640
Accounts receivable - trade, net . . . . . . . . . . . . . . . . . . . 838 696
Accounts receivable - other, net . . . . . . . . . . . . . . . . . . . 78 101
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,121 29,919
Prepaid expenses, notes receivable and other current assets. . . . . . 692 804
Current assets of discontinued operations. . . . . . . . . . . . . . . -- 2,698
----------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 48,174 53,672
----------- ----------
Notes receivable and other assets. . . . . . . . . . . . . . . . . . . 341 418
Investments in affiliates. . . . . . . . . . . . . . . . . . . . . . . 823 3,884
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . 7,971 9,394
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . 2,954 3,354
Non-current assets of discontinued operations. . . . . . . . . . . . . -- 213
----------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60,263 $ 70,935
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Floor plan payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,988 $ 6,826
Current installments of notes payable. . . . . . . . . . . . . . . . . 268 70
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 982 957
Warranty reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,658 1,687
Accrued and other liabilities. . . . . . . . . . . . . . . . . . . . . 4,674 4,614
Liquidation and plan reserve . . . . . . . . . . . . . . . . . . . . . 884 1,269
Claims reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . 886 1,666
Initial distribution payable . . . . . . . . . . . . . . . . . . . . . 67 2,675
Current liabilities of discontinued operations . . . . . . . . . . . . -- 538
----------- ----------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . 12,407 20,302
----------- ----------
Notes payable, less current installments . . . . . . . . . . . . . . . 175 502
Non-current liabilities and minority interest of discontinued
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,226
Commitments and contingencies. . . . . . . . . . . . . . . . . . . . . -- --
SHAREHOLDERS' EQUITY
Common stock series C, par value $0.01; 15,000,000 shares authorized,
10,000,000 shares outstanding at June 27, 2003 and
March 26, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 100
Common stock series M, par value $0.01; 7,500,000 shares authorized,
100 shares outstanding at June 27, 2003, and 67,600 shares
outstanding at March 26, 2004 . . . . . . . . . . . . . . . . . . . 1 --
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 49,445 49,355
Accumulated deficit since September 29, 2001 (accumulated deficit of
$158 million eliminated at time of reorganization) . . . . . . . . . (1,865) (550)
----------- ----------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . 47,681 48,905
----------- ----------
Total liabilities and shareholders' equity . . . . . . . . . . . . $ 60,263 $ 70,935
=========== ==========
See accompanying notes to consolidated financial statements
3
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)
NINE MONTHS NINE MONTHS
ENDED ENDED
MARCH 26, MARCH 28,
2004 2003
------------- -------------
Cash flows from operations:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,315) $ (2,079)
Adjustments to reconcile net loss to net cash used by operations:
Loss (Gain) on sale of assets . . . . . . . . . . . . . . . . . (1,078) (5)
Depreciation and amortization . . . . . . . . . . . . . . . . . 398 454
Losses (earnings) in affiliates . . . . . . . . . . . . . . . . 136 (379)
Change in assets and liabilities:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . (119) (863)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . (202) (2,115)
Prepaid expenses, notes receivable and other current assets . 112 (345)
Notes receivable and other assets . . . . . . . . . . . . . . 77 (47)
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . 25 8
Accrued expenses and other liabilities. . . . . . . . . . . . (355) (3,382)
------------- -------------
Net cash used by continuing operations. . . . . . . . . . . (2,321) (8,753)
Changes in net assets of discontinued operations. . . . . . . 1,147 (203)
------------- -------------
Net cash used by operations . . . . . . . . . . . . . . . . (1,174) (8,956)
------------- -------------
Cash flows from investing activities:
Sales of property, plant and equipment. . . . . . . . . . . . . . 2,784 79
Purchases of property, plant and equipment. . . . . . . . . . . . (281) (245)
Dividend from unconsolidated affiliate. . . . . . . . . . . . . . 95 221
Net return of investment in affiliate . . . . . . . . . . . . . . 2,830 --
------------- -------------
Net cash from (used for) investing activities . . . . . . . 5,428 55
------------- -------------
Cash flows from financing activities:
Borrowings under floor plan payable . . . . . . . . . . . . . . . 4,588 8,104
Repayments of floor plan payable. . . . . . . . . . . . . . . . . (8,426) (14,885)
Principal payments of long-term debt. . . . . . . . . . . . . . . (129) (78)
Exercise of stock options . . . . . . . . . . . . . . . . . . . . 91 --
Payment of, and other changes in, plan obligations. . . . . . . . (3,387) (1,215)
Change in restricted cash . . . . . . . . . . . . . . . . . . . . 3,821 835
------------- -------------
Net cash from (used for) financing activities . . . . . . . (3,442) (7,239)
------------- -------------
Net change in cash and cash equivalents . . . . . . . . . . . . . 812 (16,140)
Cash and cash equivalents at beginning of period. . . . . . . . . 14,473 31,959
------------- -------------
Cash and cash equivalents at end of period. . . . . . . . . . . . $ 15,285 $ 15,819
============= =============
Supplemental Cash Flow Information
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . $ -- $ --
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . 251 761
============= =============
See accompanying notes to consolidated financial statements
4
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
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.
American Homestar Corporation is a regional vertically integrated
manufactured housing company, with operations in manufacturing, retailing,
financing and insurance. We were incorporated in Texas in July 1983.
The accompanying consolidated financial statements of the Company and its
subsidiaries have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). In the opinion of management,
all normal recurring adjustments considered necessary for a fair presentation
have been included. The consolidated financial statements do not include certain
financial and footnote information required by generally accepted accounting
principles for complete financial statements and, therefore, should be read in
conjunction with the Company's annual report on Form 10-K for the fiscal year
ended June 27, 2003. Because of the seasonal nature of our business, results of
operations for the three months ended March 26, 2004 are not necessarily
indicative of the results that may be expected for the full fiscal year. Certain
amounts previously reported have been reclassified to conform to the fiscal 2004
presentation.
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 of
Reorganization"). All conditions to the effectiveness of the Plan of
Reorganization were met and the Plan of Reorganization became effective on
October 3, 2001 (the "Effective Date"). 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 of Reorganization.
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 Sheet:
- 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.
5
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- Warranty reserve is an estimate of all future warranty-related
service expenses that will be incurred as to all homes previously
sold that 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 that are still under
warranty.
- Reserve for future repurchase losses reflects management's
estimates of both repurchase frequency and severity of net loss
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 estimates of
all future costs and expenses to be incurred in administering and
satisfying obligations under the Plan of Reorganization as well
as the net cost to complete the liquidation of all non-core
operations.
- Claims reserve reflects management's estimates 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 payment for the used home is received.
Other revenue includes revenue from our insurance agency, commission income
from the sale of repossessed homes, income from the sale of wheels and axles and
nominal other corporate income.
Insurance commissions are recognized when received and acknowledged by the
underwriter as due.
Other revenue items are recognized when received.
6
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued FASB Interpretation No. (FIN) 46R,
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 their activities without additional subordinated financial support. FIN
46R 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 46R 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
46R is applicable to periods ending after March 15, 2004. If we are the primary
beneficiary of a VIE, because we are obligated to absorb the majority of the
expected losses or receive the majority of the residual returns, we will
consolidate the VIE in our consolidated financial statements. As of March 26,
2004, we have not consolidated any VIEs. We do not expect that the adoption of
FIN 46R will have a material effect on our financial position or results of
operation.
(2) INVENTORIES
A summary of inventories, net of valuation reserves follows (in thousands):
MARCH 26, JUNE 27,
2004 2003
---------- ---------
Manufactured homes:
New. . . . . . . . . . . . . . . $ 21,589 $ 22,620
Used . . . . . . . . . . . . . . 1,671 1,888
Homesites:
Land . . . . . . . . . . . . . . 1,328 891
Improvements . . . . . . . . . . 2,941 2,345
Furniture and supplies . . . . . . 564 423
Raw materials and work-in-process 2,028 1,752
---------- ---------
Total. . . . . . . . . . . . $ 30,121 $ 29,919
========== =========
(3) DEFERRED INCOME TAX ASSETS
At June 27, 2003 The Company had deferred income tax assets of
approximately $30 million which represent potential income tax savings as and if
the Company generates future taxable income. At June 27, 2003 we provided a full
valuation allowance as to these assets. The ultimate realization of these
deferred income tax assets depends upon the generation of future taxable income
during the periods in which temporary differences become deductible and before
our net operating loss carry-forward expires in 2023. Due to the most recent
historical operating results of the Company, we are unable to conclude, on a
more likely than not basis, that all deferred income tax assets will be
realized. In addition, a significant change in ownership of our Series C common
stock, during any three year period in the future, could severely impair these
deferred income tax assets and/or severely limit our ability to realize them.
Accordingly, we continue to recognize a full valuation allowance to reduce the
net deferred income tax assets to an amount we believe will more likely than not
be realized.
7
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(4) DISCONTINUED OPERATIONS
On February 25, 2004, the Company sold its 51% interest in Roadmasters
Transport Company, Inc. ("Roadmasters") to Roadmasters for approximately $1.4
million, which was slightly more than the carrying value of the Company's
investment in Roadmasters. Concurrent with the sale, the Company entered into a
three-year transportation agreement with Roadmasters under which Roadmasters
will continue to provide transportation services to the Company at competitive
rates. Summary unaudited information for Roadmasters, as of and for the periods
indicated, is as follows (in thousands):
MARCH 26, JUNE 27,
2004 2003
---------- ---------
Total current assets. . . . . . . . . . . . . $ -- $ 2,698
Total non-current assets. . . . . . . . . . . -- 213
Total current liabilities . . . . . . . . . . -- 538
Non-current liabilities and minority interest -- 1,226
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
MARCH 26, MARCH 28, MARCH 26, MARCH 28,
2004 2003 2004 2003
-------------- -------------- ------------- -------------
Total revenues. . . . . . $ 2,779 $ 3,845 $ 12,436 $ 13,868
-------------- -------------- ------------- -------------
Net income(loss). . . . . (74) 44 200 399
Gain on Disposal. . . . . 34 -- 34 --
Minority Interests. . . . 36 (21) (98) (195)
Income from discontinued
operations, net of
income taxes and
minority interests. . . $ (4) $ 23 $ 136 $ 204
============== ============== ============= =============
8
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(5) INVESTMENT IN AFFILIATES COMPANIES
In fiscal 2000, the Company invested $2.4 million to provide one-half of
the initial capitalization of Homestar 21, LLC ("Homestar 21"), a joint venture
owned 50% by the Company and 50% by 21st Mortgage Corporation, a company not
affiliated with the American Homestar. 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.
On March 23, 2004, the Company and Homestar 21 entered into an agreement to
dissolve Homestar 21. As a liquidating dividend, the Company and 21st Mortgage
each received approximately $3.2 million, which was slightly more than the
carrying value of its investment. Concurrent with the dissolution of Homestar
21, the Company entered into an Origination Fee Agreement with 21st Mortgage
which provides the Company the opportunity to earn origination fees on certain
new loans in the future as the Company meets quarterly sales targets as to the
sale of 21st Mortgage repossessions. Summary unaudited financial information for
Homestar 21, as of and for the periods indicated, is as follows (in thousands):
MARCH 26, JUNE 27,
2004 2003
---------- ---------
Total assets . . . . . . . . . . . . . . . . $ -- $ 7,110
========== =========
Total liabilities. . . . . . . . . . . . . . -- $ 191
========== =========
Shareholders' equity . . . . . . . . . . . . $ -- $ 6,919
========== =========
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
MARCH 26, MARCH 28, MARCH 26, MARCH 28,
2004 2003 2004 2003
-------------- ------------- ------------- ------------
Total revenues . . . . $ 456 $ 631 $ 1,584 $ 2,528
============== ============= ============= ============
Net income . . . . . . $ (252) $ 228 $ (298) $ 714
============== ============= ============= ============
9
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 American Homestar.
Homestar Mortgage operated as a mortgage broker/loan originator for ultimate
placement with Home Loan and other mortgage banks. In July 2003 the Company
reached agreement with Home Loan to cease operations effective July 31, 2003.
Homestar Mortgage has ceased operations and liquidated all assets. The Company
accounts for its investment in Homestar Mortgage using the equity method.
Summary unaudited financial information for Homestar Mortgage, as of and for the
periods indicated, is as follows (in thousands):
MARCH 26, JUNE 27,
2004 2003
---------- ---------
Total assets . . . . . . . . . . . . . . . $ -- $ 263
========== =========
Total liabilities . . . . . . . . . . . . $ -- $ 5
========== =========
Owners' equity . . . . . . . . . . . . . . $ -- $ 258
========== =========
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
MARCH 26, MARCH 28, MARCH 26, MARCH 28,
2004 2003 2004 2003
------------- ------------- ------------ ------------
Total revenues . . . . $ -- $ 140 $ 137 $ 224
============= ============= ============ ============
Net income . . . . . . $ -- $ 11 $ 17 $ 44
============= ============= ============ ============
10
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In March 2003, we 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 which are affiliated
with American Homestar. Under the terms of the partnership agreement, the land
developer agreed to guarantee all debt of the partnership and we agreed to
provide for the cash needs of the venture (to a maximum of $547,000) in the form
of additional capital contributions for which we will receive a preferred return
upon completion of the development project. We have the right, but not the
obligation, to cure any loan defaults of the partnership. In such case, we would
assume the other partners' ownership interests. As of March 26, 2004, American
Homestar had contributed a total of $319,009 to the venture. We account for our
investment in Humble Springs LTD using the equity method. Summary unaudited
financial information for Humble Springs LTD, as of and for the periods
indicated, is as follows (in thousands):
MARCH 26, JUNE 27,
2004 2003
---------- ---------
Total assets. . . . . . . . . . . . . . . . $ 806 $ 783
========== =========
Total liabilities . . . . . . . . . . . . . $ 487 $ 487
========== =========
Owners' equity. . . . . . . . . . . . . . . $ 319 $ 296
========== =========
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
MARCH 26, MARCH 28, MARCH 26, MARCH 28,
2004 2003 2004 2003
------------- ------------- ------------ ------------
Total revenues . . . . $ -- $ -- $ -- $ --
============= ============= ============ ============
Net income . . . . . . $ -- $ -- $ -- $ --
============= ============= ============ ============
11
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In January 2004, we invested $50 for a 49.5% interest in 114 Starwood
Development, LTD. ("Starwood"), a land development joint venture. The other
partners in the venture are a land development company and certain of its
affiliates, none of which are affiliated with American Homestar. Under the terms
of the partnership agreement, the land developer agreed to guarantee all debt of
the partnership and we agreed to provide for the cash needs of the venture (to a
maximum of $500,000) in the form of additional capital contributions for which
we will receive a preferred return upon completion of the development project.
We have the right, but not the obligation, to cure any loan defaults of the
partnership. In such case, we would assume the other partners' ownership
interests. As of March 26, 2004, American Homestar had contributed a total of
$499,376 to the venture. We account for our investment in Starwood using the
equity method. Summary unaudited financial information for Starwood, as of and
for the periods indicated, is as follows (in thousands):
MARCH 26, JUNE 27,
2004 2003
---------- ---------
Total assets. . . . . . . . . . . . . . . . $ 3,147 $ --
========== =========
Total liabilities . . . . . . . . . . . . . $ 2,639 $ --
========== =========
Owners' equity. . . . . . . . . . . . . . . $ 508 $ --
========== =========
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
MARCH 26, MARCH 28, MARCH 26, MARCH 28,
2004 2003 2004 2003
------------- ------------- ------------ ------------
Total revenues . . . . $ 41 $ -- $ 41 $ --
============= ============= ============ ============
Net income . . . . . . $ 9 $ -- $ 9 $ --
============= ============= ============ ============
(6) NOTES AND FLOOR PLAN PAYABLE
On October 3, 2001, we entered into a floor plan credit facility with
Associates Housing Financial LLC ("Associates") to finance the purchase of our
display models and inventory homes. The balance outstanding at March 26, 2004
was $3.0 million and the balance at June 27, 2003 was $6.8 million. This floor
plan credit facility was paid in full and retired on March 30, 2004.
On March 15, 2004 the Company received a commitment for a new inventory
financing (floor plan) credit facility through 21st Mortgage Corporation. The
total credit line is $15 million although maximum borrowings, at any time, are
subject to a borrowing base calculation based on the age of the inventory used
as collateral. Advances under this line bear interest at the greater of prime
plus 1% per annum or 7% per annum. This credit facility is secured by the
Company's new home inventory and display models.
12
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(7) SHAREHOLDERS' EQUITY AND PRO-FORMA EARNINGS PER SHARE
Under the Plan of Reorganization, we have the authority to issue 15 million
shares of new 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 new shares
of Series C common stock to persons holding allowed unsecured claims and shares
of Series M common stock to management under an incentive program. As of March
26, 2004, we had issued 10 million shares of Series C common stock, of which
9,877,531 shares were issued to specific shareholders with allowed claims under
the Plan of Reorganization, and 122,469 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 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 March 26, 2004, and 4,999,900 shares underlie options authorized
under the Company's 2001 Management Incentive Program. As of March 26, 2004, the
board of directors has approved and granted options to purchase 4,944,400 shares
of Series M common stock 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 March 26, 2004, options for 67,500 shares had been
exercised and options to purchase 1,091,975 additional shares were vested.
We account for grants to employees and directors under the provisions of
APB Opinion No. 25 and related interpretations. Had compensation expense for the
Plan of Reorganization been determined based upon the fair value method as
prescribed in SFAS No. 123, the loss would have changed to the following pro
forma amounts for the three and nine months ended March 26, 2004 and March 28,
2003, respectively.
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
MARCH 26, MARCH 28, MARCH 26, MARCH 28,
2004 2003 2004 2003
-------------- -------------- ------------- -------------
Net income (loss) as reported. . . . . $ 221 $ (455) $ (1,315) $ (2,079)
Deduct: total stock-based employee
compensation expense determined
under fair value based method for
awards, net of related tax effects (94) (61) (189) (110)
-------------- -------------- ------------- -------------
Net income (loss), pro forma . . . . . $ 127 $ (516) $ (1,504) $ (2,189)
============== ============== ============= =============
Net income (loss) per share
As reported. . . . . . . . . . . . $ 0.02 $ (0.05) $ (0.13) $ (0.21)
============== ============== ============= =============
Pro forma. . . . . . . . . . . . . $ 0.01 $ (0.06) $ (0.15) $ (0.22)
============== ============== ============= =============
13
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(8) BUSINESS SEGMENTS
The Company operates primarily in four business segments-(i) retail; (ii)
manufacturing; (iii) insurance; and (iv) corporate. The following table
summarizes, for the periods indicated, information about these segments (in
thousands):
ADJUSTMENTS/
RETAIL MANUFACTURING INSURANCE CORPORATE ELIMINATIONS TOTAL
-------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 26, 2004
Revenues from external
customers . . . . . . . . . . . $ 13,951 $ 2,815 $ 335 $ 6 $ -- $17,107
Intersegment revenues . . . . . . . -- 6,528 -- -- (6,528) --
Interest expense. . . . . . . . . . 63 -- -- -- -- 63
Depreciation. . . . . . . . . . . . 66 47 1 8 -- 122
Segment profit (loss) before income
taxes, earnings in affiliates
and discontinued operations . . (491) 1,504 133 (875) 76 347
Segment assets. . . . . . . . . . . 19,912 22,139 737 53,401 (35,926) 60,263
Expenditures for segment
assets. . . . . . . . . . . . . 136 -- -- 4 -- 140
ADJUSTMENTS/
RETAIL MANUFACTURING INSURANCE CORPORATE ELIMINATIONS TOTAL
-------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 28, 2003
Revenues from external customers. . $ 14,882 $ 3,732 $ 342 $ 48 $ -- $19,004
Intersegment revenues . . . . . . . -- 7,065 -- -- (7,065) --
Interest expense. . . . . . . . . . 221 -- -- -- -- 221
Depreciation. . . . . . . . . . . . 73 61 2 15 -- 151
Segment profit (loss) before income
taxes, earnings in affiliates
and discontinued operations . . (540) 781 137 (992) 14 (600)
Segment assets. . . . . . . . . . . 27,852 28,971 1,207 50,490 (32,343) 76,177
Expenditures for segment
assets. . . . . . . . . . . . . 45 18 -- 5 -- 68
ADJUSTMENTS/
RETAIL MANUFACTURING INSURANCE CORPORATE ELIMINATIONS TOTAL
-------------------------------------------------------------------------------------
NINE MONTHS ENDED
MARCH 26, 2004
Revenues from external
customers . . . . . . . . . . . $ 42,742 $ 8,381 $ 1,093 $ 17 $ -- $52,233
Intersegment revenues . . . . . . . -- 20,738 -- -- (20,738) --
Interest expense. . . . . . . . . . 264 -- -- -- -- 264
Depreciation. . . . . . . . . . . . 197 170 3 28 -- 398
Segment profit (loss) before income
taxes, earnings in affiliates
and discontinued operations . . (2,679) 3,037 468 (2,432) 71 (1,535)
Segment assets. . . . . . . . . . . 19,912 22,139 737 53,401 (35,926) 60,263
Expenditures for segment
assets. . . . . . . . . . . . . 226 44 3 8 -- 281
ADJUSTMENTS/
RETAIL MANUFACTURING INSURANCE CORPORATE ELIMINATIONS TOTAL
-------------------------------------------------------------------------------------
NINE MONTHS ENDED
MARCH 28, 2003
Revenues from external
customers . . . . . . . . . . . $ 45,891 $ 8,544 $ 970 $ 73 $ -- $55,478
Intersegment revenues . . . . . . . -- 22,586 -- -- (22,586) --
Interest expense. . . . . . . . . . 778 -- -- -- -- 778
Depreciation. . . . . . . . . . . . 221 183 6 44 -- 454
Segment profit (loss) before income
taxes, earnings in affiliates
and discontinued operations . . (2,371) 2,241 399 (2,808) (125) (2,664)
Segment assets. . . . . . . . . . . 27,852 28,971 1,207 50,490 (32,343) 76,177
Expenditures for segment
assets. . . . . . . . . . . . . 155 35 -- 55 -- 245
14
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Intersegment revenues consist primarily of sales by the manufacturing
segment to the retail segment and are transferred at market price. The
adjustment to intersegment revenues and segment profit is made to eliminate
intercompany sales and profit between the manufacturing and retail segments. The
segment assets adjustment consists primarily of an adjustment to eliminate
subsidiaries' equity at the corporate level and the elimination of intercompany
receivables.
Earnings in affiliates in the consolidated statements of operations relates
to financial services.
15
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-Q contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company's
management as well as assumptions made by and information currently available to
the Company's management. When used in this document, the words "anticipate,"
"believe," "estimate," "should," and "expect" and similar expressions as they
relate to the Company or management of the Company are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions that could cause actual results to differ
materially. These risks and uncertainties include the following items:
- Excess inventories among retailers.
- Continuing downturn in the manufactured housing industry.
- Seasonal and cyclical nature of our business.
- Tightened credit standards, curtailed lending activity, tightened
terms and increased interest rates among consumer lenders.
- Ability to obtain floor plan financing.
- Ability to securitize or fund loans.
- Ability of our customers to repay their loans.
- Relative strength of our competitors.
- Concentrated market in the Southwest region with our primary focus in
Texas.
- Ability to attract and retain our executive officers and other key
personnel.
OVERVIEW:
American Homestar is a regional vertically integrated manufactured housing
company with operations in manufacturing, retailing, 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 manufacturing facilities. A third manufacturing
facility, which was primarily engaged in refurbishing manufactured homes
obtained through lender repossessions, was sold by he Company on January 15,
2004. As a condition of the sale, we will lease, and continue to use, this
facility for at least one year from the date of sale.
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 of
Reorganization were met, and the Plan became effective, and the Company and our
subsidiaries emerged from bankruptcy.
In connection with the Plan of Reorganization we issued 10 million Series C
common shares to our former unsecured creditors. Those shares were restricted
from sale or transfer until April 12, 2004. After April 12, 2004 the Series C
Common shares are quoted on the Over-the-Counter ("pink sheets") market under
the trading symbol "AHMS".
16
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 30 retail sales centers in Texas, Louisiana and Oklahoma and two sales
centers in manufactured housing communities in Texas. In addition, we display
homes that are ready for sale and occupancy ("spec homes") and model homes in
approximately 34 additional manufactured housing communities, although we do not
have an on-site sales office at the communities. We also distribute homes
through approximately 64 independent retailers and developers located in five
states. We operate two manufacturing plants, both of which produce new homes,
and a third facility that refurbishes lender repossessions. Additionally, we
operate an insurance agency, which sells homeowner's insurance, credit life
insurance and extended warranty coverage to its customers. In the current
quarter we sold our 51% ownership interest in a transport company that
specializes in the transportation of manufactured and modular homes and offices.
Also in the current quarter, a finance company that specialized in providing
chattel and land/home financing to our customers, and in which we had a 50%
interest, was dissolved. Most recently, we have aligned with several developers
to meet an emerging market segment in our core Southwest market region and to
gain greater market share. We believe that our regional vertical integration
strategy, which derives multiple profit sources from each retail sale, will
allow us to be more successful, over time, than would otherwise be the case.
RESULTS OF OPERATIONS
The following table summarizes certain key sales and operating statistics
for the periods:
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
MARCH 26, MARCH 28, MARCH 26, MARCH 28,
2004 2003 2004 2003
------------- ------------- ------------ ------------
Company-manufactured new homes sold at retail:
Single section . . . . . . . . . . . . . . . . . 59 47 145 171
Multi-section. . . . . . . . . . . . . . . . . . 169 196 536 594
Total new homes sold at retail . . . . . . . . . . . 228 243 681 765
Previously-owned homes sold at retail. . . . . . . . 31 42 107 167
Average retail selling price - new homes, excluding
land:
Single section . . . . . . . . . . . . . . . . . $ 31,025 $ 32,339 $ 32,174 $ 32,533
Multi-section. . . . . . . . . . . . . . . . . . $ 66,176 $ 63,798 $ 65,436 $ 61,518
Company-operated retail centers and community
sales offices at end of period . . . . . . . . . . 30 36 30 36
Total manufacturing shipments (homes). . . . . . . . 271 334 834 928
Manufacturing shipments to independent retail
sales centers and developers (homes). . . . . . . 73 122 216 246
The following table summarizes the Company's operating results, expressed
as a percentage of total revenues, for the periods indicated:
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
MARCH 26, MARCH 28, MARCH 26, MARCH 28,
2004 2003 2004 2003
------------- ------------- ------------ ------------
Total revenues. . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Gross profit. . . . . . . . . . . . . . . . . . 31.6% 33.0% 32.8% 34.3%
Selling, general and administrative expenses. . 35.2% 35.4% 38.4% 38.3%
Operating loss. . . . . . . . . . . . . . . . . (3.6)% (2.3%) (5.5%) (4.0%)
Income (loss) before income taxes, earnings in
affiliates and discontinued operations . . . 2.0% (3.2%) (2.9%) (4.8%)
Net Income (Loss) . . . . . . . . . . . . . . . 1.3% (2.4%) (2.5%) (3.7%)
17
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS ENDED MARCH 26, 2004 COMPARED TO THREE MONTHS ENDED MARCH 28, 2003
Net Sales. Net sales of manufactured homes were $16.3 million for the
three months ended March 26, 2004, compared to $18.2 million for the three
months ended March 28, 2003. The 10% decrease in net sales was as a result of a
decline in retail sales, generally consistent with an overall decline in new
home sales in Texas.
Retail sales declined $0.9 million (or 6%) for the three months ended March
26, 2004. New home sales declined to 228 homes for the three months ended March
26, 2004 from 243 homes for the three months ended March 28, 2003. Same store
retail sales were approximately seven homes per retail store in each period. The
decline in total number of new home sales was attributable to closing
underperforming retail centers since September 2002. During the current quarter
one retail center was leased to an independent dealer. Management continues to
monitor all stores to ensure that sales are at or above pre-determined minimum
acceptable levels.
Manufacturing division sales to independent dealers and developers declined
to $2.8 million in the three month period ended March 26, 2004 when compared to
$3.7 million in the three month period ended March 28, 2003. Total manufacturing
shipments declined to 271 homes for the three month period ended March 26, 2004
compared to 334 homes for the three month period ended March 28, 2003 as a
result of lower sales to developers. We were supplying our first large project
in the comparable quarter last year while none of our planned projects were
being supplied in the current quarter.
Other Revenues. Other revenues remained unchanged at $0.8 million for the
three months ended March 26, 2004 when compared to the three months ended March
28, 2003.
Cost of Sales. Cost of sales was $11.7 million (or 68% of revenues) for the
three months ended March 26, 2004, compared to $12.7 million (or 67% of
revenues) for the three months ended March 28, 2003.
Cost of sales for homes sold at retail increased to 72% of retail revenues
for the three months ended March 26, 2004, compared to 70% of retail revenues
for the three months ended March 28, 2003 due to a lower proportion of used home
sales (which typically represent a lower cost of sales percentage) and due to
increased subdivision sales which carry a lower percentage margin.
Cost of sales for homes sold to independent dealers and subdivision
developers (expressed as a percentage of manufacturing revenues) for the three
months ended March 26, 2004 increased slightly to 88% compared to 87% for the
three months ended March 28, 2003. Significant increases in costs of lumber and
wood products during the quarter were included in the wholesale selling prices
of our homes as a temporary wood products surcharge.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $6.0 million (or 35% of revenues) in the three
months ended March 26, 2004, compared to $6.7 million (or 35% of revenues) in
the three months ended March 28, 2003. Variable selling costs were lower due to
lower revenues. Lower fixed costs due to fewer retail stores were partially
offset by increases in merchandising costs and employee benefits.
Gain on sale of assets. The gain on sale of assets of $1.0 million for the
three months ended March 26, 2004 was a result of the sale of a manufacturing
facility which was primarily engaged in refurbishing manufactured homes.
Interest Expense. Interest expense was $0.1 million for the three months
ended March 26, 2004, compared to $0.2 million for the three months ended March
28, 2003. The decrease was attributable to the significant reduction of the
inventory-related (floor plan) debt from $13.9 million at March 28, 2003 to $3.0
million at March 26, 2004.
Other Income. Other income was unchanged at $0.1 million for the three
months ended March 26, 2004, compared to the three months ended March 28, 2003.
18
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
Earnings in Affiliates. Our 50% share in the after-tax earnings of Homestar
21, LLC was a loss of $0.1 million for the three months ended March 26, 2004,
compared to income of $0.1 million for the three months ended March 28, 2003.
In prior periods, Homestar 21 has reported income from origination and rate
buy-down points which were recorded as revenues when each loan was sold. Due to
a change in the method in which these loans are now financed, the points are now
amortized over the life of the loan. As a result of the elimination of the
origination and rate buy-down points income for the three months ended March 26,
2004, Homestar 21 reported a loss. On March 23, 2004, the Company and its
partner in the venture, 21st Mortgage, dissolved and liquidated Homestar 21.
Discontinued Operations. The transportation division was sold during the
quarter ended March 26, 2004. Operating results for the quarter ending March
26, 2004 and for the quarter ending March 28, 2003 are reported as discontinued
operations. Net loss for the discontinued operation was $0.01 million for
quarter ending March 26, 2004 compared to income of $0.02 million for quarter
ended March 28, 2003.
NINE MONTHS ENDED MARCH 26, 2004 COMPARED TO NINE MONTHS ENDED MARCH 28, 2003
Net Sales. Net sales of manufactured homes were $49.9 million for the nine
months ended March 26, 2004, compared to $53.0 million for the nine months ended
March 28, 2003. The 6% decrease in net sales was as a result of a decrease in
retail home sales.
Retail sales declined $3.0 million (or 6.7%) for the nine months ended
March 26, 2004. New home sales declined to 681 homes for the nine months ended
March 26, 2004 from 765 homes for the nine months ended March 28, 2003. Same
store sales at retail were approximately 21 homes per retail store for both the
period ended March 26, 2004 and for the period ended March 28, 2003. The decline
in total number of new home sales was attributable to closing underperforming
retail centers since September 2002. During the nine months ended March 26,
2004, one retail center was leased to an independent dealer. Management
continues to monitor all stores to ensure that sales are at or above
pre-determined minimum acceptable levels.
Manufacturing division sales to independent dealers and developers were
$8.4 million in the nine-month period ended March 26, 2004, compared to $8.5
million in the nine-month period ended March 28, 2003. Manufacturing shipments
to independent dealers and developers were 834 homes for the nine months ended
March 26, 2004 compared to 928 homes shipped for the nine months ended March 28,
2003.
Other Revenues. Other revenues decreased $0.1 million to $2.4 million for
the nine months ended March 26, 2004, compared to $2.5 million for the nine
months ended March 28, 2003.
Cost of Sales. Cost of sales was $35.1 million (or 67% of revenues) for the
nine months ended March 26, 2004, compared to $36.4 million (or 66% of
revenues) for the nine months ended March 28, 2003.
Cost of sales for homes sold at retail increased to 71.7% of retail
revenues for the nine months ended March 26, 2004, compared to 69.6% of retail
revenues for the nine months ended March 28, 2003 due to a lower proportion of
used home sales (which typically represent a lower cost of sales percentage) and
due to increased subdivision sales which carry a lower percentage margin.
Cost of sales for homes sold to independent dealers and developers
(expressed as a percentage of manufacturing revenues) for the nine months ended
March 26, 2004 was essentially unchanged at 87% when compared to the nine months
ended March 28, 2003. Significant increases in costs of lumber and wood products
during the nine month period ended March 26, 2004 were included in the wholesale
selling prices of our homes as a temporary wood products surcharge.
19
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $20.0 million (or 38.4% of revenues) in the nine
months ended March 26, 2004, compared to $21.2 million (or 38.3% of revenues) in
the nine months ended March 28, 2003. Lower fixed costs due to fewer retail
stores were largely offset by increases in advertising and other merchandising
costs.
Gain on sale of assets. The gain on sale of assets of $1.1 million for the
nine months ended March 26, 2004 was essentially the result of the sale of a
manufacturing facility which was primarily engaged in refurbishing manufactured
homes.
Interest Expense. Interest expense was $0.3 million for the nine months
ended March 26, 2004, compared to $0.8 million for the nine months ended March
28, 2003. The decrease was attributable to the significant reduction of the
inventory-related (floor plan) debt from $13.9 million at March 28, 2003 to $3.0
million at March 26, 2004.
Other Income. Other income was $0.5 million for the nine months ended March
26, 2004, compared to $0.3 million for the nine months ended March 28, 2003. The
increase was due primarily to a $0.4 million refund of a prior year insurance
deposit.
Income Taxes. We had an income tax benefit of $0.2 million (on pretax loss
of $1.5 million) for the nine months ended March 26, 2004, compared to an income
tax benefit of $0.02 (on a pretax loss of $2.7 million) for the nine months
ended March 28, 2003. The tax benefit for the nine months ended March 26, 2004
resulted from a tax refund of $0.2 million which related to a prior year but was
received during the period.
Earnings in Affiliates. Our 50% share in the after-tax earnings of Homestar
21, LLC was a loss of $0.1 million for the nine months ended March 26, 2004,
compared to income of $0.4 million for the nine months ended March 28, 2003. In
prior periods, Homestar 21 has reported income from origination and rate
buy-down points which were recorded as revenues when each loan was sold. Due to
a change in the method in which these loans are now financed, the points are now
amortized over the life of the loan. As a result of the elimination of the
origination and rate buy-down points income for the nine months ended March 26,
2004, Homestar 21 reported a loss. On March 23, 2004, the Company and its
partner in the venture, 21st Mortgage, dissolved and liquidated Homestar 21.
Discontinued Operations. The transportation division was sold during the
period ended March 26, 2004. Operating results for the nine months ended March
26, 2004 and for the quarter ended March 28, 2003 are reported as discontinued
operations. Net income for the discontinued operation was $0.1 million for nine
months ended March 26, 2004 compared to income of $0.2 million for nine months
ended March 28, 2003.
20
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES:
At March 26, 2004, we had operating cash and cash equivalents of $15.3
million, cash-reserved for claims of $0.9 million, and cash-restricted of $0.2
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 of Reorganization. The restricted cash represents $0.2 million
held in a cash collateral account, which secures the Company's floor plan
through Associates Housing Financial LLC ("Associates").
During the nine months ended March 26, 2004, cash used in operating
activities of continuing operations was $2.3 million. Of that, $1.9 million was
used to fund operating losses, $0.1 million was invested in current assets and
$0.3 million was used to reduce accounts payable and accrued liability balances.
We also generated $2.5 million from the sale of assets after deducting
maintenance-level capital expenditures during the period.
Under the Plan of Reorganization, the Company was required to make an
initial distribution of approximately $5.3 million to our new shareholders. We
made payments of approximately $2.1 million and $0.5 million in April 2002 and
December 2002, respectively. In July 2003, we made a third payment of
approximately $1.0 million from cash reserved for that purpose. In February
2004, we made the fourth payment of $1.6 million from reserved cash. In
addition, we paid approximately $0.8 million for other claims and obligations
under the Plan of Reorganization. At March 26, 2004, approximately $0.1 million
is in escrow for the balance of the initial distribution and approximately $0.9
million is reserved for the balance of our estimate of all remaining cash
obligations related to the Plan of Reorganization.
We also further reduced our floor plan debt by $3.8 million during the nine
months ended March 24, 2004. The balance outstanding at March 26, 2004 under the
floor plan credit facility with Associates was $3.0 million. This revolving line
carried an annual interest rate of prime plus 1%. This floor plan credit
facility was paid in full and retired on March 30, 2004. On March 15, 2004 we
received a commitment for a new inventory floor plan credit facility through
21st Mortgage Corporation. The total credit line is $15 million although maximum
borrowings, at any time, are subject to a borrowing base calculation based on
the age of the inventory used as collateral. Advances under this line bear
interest at the greater of prime plus 1% or 7% per annum. This credit facility
is secured by our new home inventory and our display models. There were no
outstanding advances under this new credit facility at March 26, 2004.
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, 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, we provide for anticipated
repurchase losses. At March 26, 2004, we were at risk to repurchase
approximately $1.5 million of manufactured homes and we have 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 borrowings
available under our new 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.
21
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
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.
22
ITEM 3. 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 $30,000.
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.
ITEM 4. CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of
March 26, 2004, the end of the quarter covered by this report, the Company
carried out an evaluation under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. In designing and evaluating the
Company's disclosure controls and procedures, the Company and its management
recognize that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and the Company's management necessarily was required to apply its
judgment in evaluating and implementing possible controls and procedures. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective to
provide reasonable assurance that information required to be disclosed by the
Company in the reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. There was no change in the
Company's internal control over financial reporting that occurred during the
quarter ended March 26, 2004 that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting. The Company reviews its disclosure controls and procedures, which may
include its internal controls over financial reporting, on an ongoing basis, and
may from time to time make changes aimed at enhancing their effectiveness and to
ensure that the Company's systems evolve with its business.
23
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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 of the Company.
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.
(b) REPORTS ON FORM 8-K
During the three months ended March 26, 2004, the Company filed the
following reports on Form 8-K:
1. On February 27, 2004 - regarding the sale of its 51% interest in
RoadMasters Transport; and
2. On March 26, 2004 - regarding the dissolution and liquidation of
its 50% interest in Homestar 21, LLC
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN HOMESTAR CORPORATION
Date: May 7, 2004 By: /s/ Craig A. Reynolds
-----------------------------------------
Craig A. Reynolds
Executive Vice President, Chief Financial
Officer and Secretary (Principal
Financial and Accounting Officer)
25
EXHIBIT INDEX
EX. NO. DESCRIPTION
- ------- -----------
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 of the Company.
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.
26