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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 2000
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: 0-21204
SOUTHERN ENERGY HOMES, INC.
(Exact name of registrant as specified in its charter)
Delaware 63-1083246
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
144 Corporate Way, P.O. Box 390, Addison, Alabama 35540
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (256) 747-8589
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Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
N/A
- ---------------------------------- -----------------------------------------
- ---------------------------------- -----------------------------------------
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.0001
------------------------------
Title of class
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the closing price of such stock on the
Nasdaq Stock Market as of March 27, 2001, was $8,402,490. The number of shares
of common stock outstanding at that date was 12,132,990 shares, $.0001 par
value.
DOCUMENTS INCORPORATED BY REFERENCE
PART ITEM
1. Southern Energy Homes, Inc. Definitive Proxy Statement with respect to its
May 22, 2001 Annual Meeting of Stockholders III 10,11,12,13
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PART I
SOUTHERN ENERGY HOMES, INC.
ITEM 1. BUSINESS
GENERAL
Southern Energy Homes, Inc. (the "Company") is engaged in the production
and retail sale of manufactured homes, the retail financing of manufactured
homes and the operation of three component supply divisions. The Company
produces manufactured homes sold primarily in the southeastern and southcentral
United States. The Company operates five home manufacturing facilities (four in
Alabama and one in Texas) to produce homes sold in 18 states. The Company's
homes are currently marketed under four brand names by 260 independent dealers
at 412 independent dealer locations and 17 company-owned retail centers.
The Company manufactures homes, which are designed as primary residences
ready for immediate occupancy. The homes, most of which are customized at the
Company's factories to the home buyer's specifications, are constructed by the
Company in one or more sections which are transported by its own or independent
trucking companies to dealer locations.
The Company historically focused on the middle to higher priced range of
the manufactured housing market, but in 1993 expanded its product line to
include lower priced homes. The Company's homes range in size from 640 to 2,750
square feet and sell at retail prices ranging from $19,000 to $90,000, excluding
land.
The Company believes that its willingness to customize floor plans and
design features to match home buyer preferences is the principal factor which
differentiates it from most of its competitors.
The Company entered the retail sector of the industry through an
acquisition in 1996. Retail allows the Company to enhance its growth potential
by allowing the Company to market directly to individual home buyers in
strategically targeted areas.
The component supply segment sells various supply products to the Company's
manufacturing segment and to third party customers.
The Company provides home buyers with a source of financing for homes sold
by the Company. This financing is provided primarily through a retail financing
joint venture. However, in limited cases, the Company finances homes through its
wholly-owned finance subsidiary.
The manufactured housing market is highly cyclical and seasonal and is
affected by the same economic factors which impact the broader housing market.
Historically, most sectors of the home building industry have been affected by,
among other things, changes in general economic conditions, levels of consumer
confidence, employment and income, housing demand, availability of financing and
interest rate levels.
MANUFACTURED HOMES
The Company produces a variety of single- and multi-section homes under
four brand names. The Company's homes are manufactured in sections, which
individually are transported to their destination. The finished homes may
consist of one or more sections. Multi-section products are joined at their
destination by the dealer or its contractor. The Company initially concentrated
on the medium to higher priced segments of the manufactured housing market. Over
the past several years, the Company has broadened its product line with lower
priced homes that sell at retail for less than $25,000. The four divisions of
the Company at which its homes were manufactured in 2000 and certain
characteristics of the homes are as follows:
DIVISION TYPE SQUARE FEET RETAIL PRICE RANGE
-------- ---- ----------- ------------------
Southern Energy Multi-section 1,312 - 2,750 $37,900 - $90,000
Southern Lifestyle Single and multi-section 640 - 2,330 19,000 - 71,000
Southern Homes Single and multi-section 672 - 2,432 20,000 - 50,000
Southern Texas Single and multi-section 1,088 - 2,432 20,000 - 57,500
For the fiscal year ended December 29, 2000, the net revenues contributed
by each of the Company's four home manufacturing divisions were as follows:
Southern Energy - $25 million; Southern Life/Style - $40 million; Southern Homes
- - $73 million; and Southern Energy Homes of Texas - $14 million.
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The Company's product development and engineering personnel design homes in
consultation with divisional management, sales representatives and dealers. They
also evaluate new materials and construction techniques in a continuous program
of product development and enhancement. With the use of computer aided design
technology, the Company has developed engineering systems which permit
customization of homes to meet the individual needs of prospective buyers. These
systems allow the Company to make modifications such as increasing the length of
a living room, moving a partition, changing the size and location of a window or
installing custom cabinets without significant impact upon manufacturing
productivity.
Each home contains two to five bedrooms, a living room, dining room,
kitchen and one to three bathrooms, and features a heating system, a stove and
oven, refrigerator, carpeting and draperies. The Company has traditionally
focused on designing manufactured homes with features that make them comparable
to site-built homes, including stone fireplaces and vaulted ceilings, thus
broadening the base of potential customers. In addition to offering the consumer
optional features such as dishwashers, oak cabinets and furniture packages as
well as a wide range of colors, moldings and finishes, the Company generally
permits extensive customization of floor plan designs to meet specific customer
preferences.
RETAIL OPERATIONS
The Company began its retail operations in November 1996 by acquiring a
group of retail companies operating in Alabama and Mississippi. In December
1997, the Company expanded its retail operations by acquiring another retail
company with seven locations in South Carolina. During 1998, the Company added
another 15 retail centers through acquisitions. However, beginning in fiscal
1999, the industry began to weaken. During 2000, the Company closed eleven
unprofitable retail sales centers; three in Alabama, three in Kentucky, two in
South Carolina, two in Georgia and one in Mississippi. The Company continues to
evaluate its unprofitable retail centers and future retail center closings could
happen which would result in further impairment charges. At December 29, 2000,
the Company had 17 retail sales centers; seven in Alabama, four in South
Carolina, three in Kentucky, two in Tennessee, and one in Mississippi. Each of
the 17 sales centers maintains a separate sales force. For the fiscal year ended
December 29, 2000, 28% of the Company's net revenues were attributable to sales
at the Company's own retail centers.
COMPONENT SUPPLY
The Company currently operates three component supply divisions. Classic
Panel Designs supplies laminated and other interior wall panels. Wind-Mar Supply
provides windows, doors and countertops. Trimmasters produces wood molding and
trim finishing, and is a provider of wood components and dining furniture. These
divisions sell products both to the Company's own manufactured housing segment
and to third-party customers. For the fiscal year period ended December 29,
2000, 3% of the Company's net revenues were attributable to sales of these
ancillary products to third parties.
CONSUMER FINANCING
Home buyers normally secure financing from third-party lenders such as
banks or independent finance companies. The availability and cost of financing
is important to the Company's sales. Starting in late 1999, financing started to
become more restrictive and some lenders have exited the market. In order to
provide home buyers with an additional source of financing, the Company's
wholly-owned subsidiary, Wenco Finance, Inc. ("Wenco Finance"), originated and
serviced consumer loans for homes manufactured by the Company during the period
January 1996 through February 1997. In February 1997, the Company formed a joint
venture with 21st Century Mortgage Corporation ("21st Century"). The joint
venture, Wenco 21, offers consumer financing for homes manufactured by the
Company as well as for other homes sold through its retail centers and
independent dealers. With marketing support and assistance from the Company and
Wenco 21, 21st Century originates and services consumer loans and assigns to
Wenco 21 the net collections from those loans after deducting service fees and
costs, credit loss reserves, and principal and interest payments due to third
party investors or lenders. Wenco 21 is obligated to indemnify 21st Century
against losses incurred in connection with the loans, other than losses incurred
as a result of negligence by 21st Century. In light of the shift in consumer
finance activities to Wenco 21, Wenco Finance reduced its loan origination
activities and engaged 21st Century to service its existing loan portfolio. At
December 29, 2000, Wenco Finance had $10.5 million of installment contract
receivables outstanding as compared with $11.6 million at December 31, 1999. The
Company expects that 21st Century and Wenco 21 will market the consumer loan
program through the Company's retail centers and independent dealer network.
There can be no assurance that 21st Century and Wenco 21 will be able to provide
significant levels of financing for home buyers, or that such financing
activities will not adversely impact the Company's profitability.
HOME MANUFACTURING OPERATIONS
The Company's homes are currently manufactured by four operating divisions
using assembly line techniques at five facilities, two of which are located in
Addison, Alabama, one of which is located in Double Springs, Alabama, one of
which is located in Lynn, Alabama and one of which is located in Fort Worth,
Texas.
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The Company's facilities operate on a one shift per day, five days per week
basis. The Company believes that these facilities have the capacity to produce a
total of approximately 165 floor sections per week with minimal labor additions.
The Company plans to continue to operate, like most of its competitors, on a
single shift per day basis. During the fiscal year ended December 29, 2000, the
Company produced an average of 174 floor sections per week. This represented a
24% decrease in floor section production from an average of 229 floor sections
per week in the fiscal year ended December 31, 1999. In the fiscal year ended
January 1, 1999, the Company produced an average of 262 floor sections per week.
The following table sets forth the total floor sections and homes sold as well
as the number of home manufacturing facilities operated by the Company for the
periods indicated:
Year Ended
-----------------------------------------------------------------------------
December 29, 2000 December 31, 1999 January 1, 1999
----------------- ----------------- ---------------
Homes 5,504 7,641 8,891
Floor sections 9,041 11,914 13,621
Home Manufacturing facilities (1) 5 7 9
(1) The Company closed one of its of its Addison, Alabama facilities in
December 2000, one of its Double Springs, Alabama facilities in February 2000,
one of its Addison, Alabama facilities in September 1999 and closed its North
Carolina facility in July 1999.
Each division operates as a separate strategic unit that is directed by a
general manager and has its own sales force. The general manager, production
managers and supervisory personnel of each division have an incentive
compensation system which is directly tied to the operating profit of the
division. In addition, production personnel of each division have a
productivity, turnover, and injury incentive compensation system. The Company
believes that these compensation systems help to focus efforts on curtailing
waste and inefficiencies in the production process, keep qualified associates,
maintain a safe workplace and represent a divergence from standard industry
practices, which are typically designed to reward personnel on production volume
criteria.
The extent of customization of the home performed by the Company varies to
a significant degree with the price of the home. In the higher price range of
the market, the home buyer is often less sensitive to the price increase that is
associated with significant design modifications that might be desired. However,
the Company's experience in producing a customized home on a cost-effective
basis has allowed the Company to offer customized homes in all price ranges.
The principal materials used in the production of the Company's homes
include steel, aluminum, wood products, gypsum wallboard, fiberglass,
insulation, carpet, vinyl floor covering, fasteners and hardware items,
appliances, electrical items, windows and doors. These materials and components
are readily available and are purchased by the Company from numerous sources. No
supplier accounted for more than 5.1% of the Company's purchases during each of
the past three fiscal years. The Company believes that the size of its purchases
allows it to obtain favorable volume discounts. The Company's expenses can be
significantly affected by the availability and pricing of raw materials. Sudden
increases in demand for construction materials can greatly increase the costs of
materials. While in the past, the Company has been able to pass along a
significant portion of increased material costs, more recently the Company has
had difficulties in passing on the increased costs due to competitive
conditions.
Because the cost of transporting a manufactured home is significant,
substantially all of the Company's homes are sold to dealers within a 600 mile
radius of a manufacturing facility. The Company arranges, at the dealer's
expense, for the transportation of finished homes to dealer locations using its
own trucking subsidiary, MH Transport, Inc., and independent trucking companies.
The Company uses MH Transport to transport a majority of its homes. Customary
sales terms are cash-on-delivery or guaranteed payment from a floor plan
financing source. Dealers or other independent installers are responsible for
placing the home on site, making utility hook-ups and providing and installing
certain trim items.
Substantially all production is initiated against specific orders, and the
manufactured homes segment does not maintain any significant inventory of unsold
completed homes. The Company's backlog of orders for manufactured homes as of
March 1, 2001 was $1.7 million as compared with $1.0 million at March 1, 2000.
Dealer orders are subject to cancellation prior to commencement of production
for a variety of reasons, and the Company does not consider its backlog to be
firm orders.
SALES NETWORK
At December 29, 2000, the Company sold manufactured homes through
approximately 260 independent dealers at approximately 412 independent dealer
locations and through 17 company-owned retail centers in 18 states principally
in the southeastern and south central United States. The Company believes that
the quality of its independent dealer network has been important to the
Company's performance.
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Each of the Company's four home manufacturing divisions maintains a
separate sales force. At December 29, 2000, a total of 28 salespersons
maintained personal contact with the Company's independent dealers. The Company
markets its homes through product promotions tailored to specific dealer needs.
In addition, the Company advertises in local media and participates in regional
manufactured housing shows.
The Company believes the close working relationship between its division
management and the independent dealers they service has been an important factor
in the effective distribution of the Company's products. In order to promote
dealer loyalty and to enable dealers to penetrate retail markets, only one
independent dealer within a given local market may distribute homes manufactured
by a division of the Company. The Company does not have formal marketing
agreements with its independent dealers and substantially all of the Company's
independent dealers also sell homes of other manufacturers. The Company believes
its relations with its independent dealers are good and the Company has
experienced relatively low turnover in its established independent dealers in
the past three years. In the fiscal year ended December 29, 2000, the Company's
largest dealer accounted for 6.2% of net revenues and the ten largest dealers
accounted for 27.0% of net revenues. In the fiscal year ended December 31, 1999,
the Company's largest dealer accounted for 2.4% of net revenues, and the
Company's ten largest dealers accounted for 19.2% of net revenues. In the fiscal
year ended January 1, 1999, the Company's largest dealer accounted for 2.9% of
net revenues and the Company's ten largest dealers accounted for 16.1% of net
revenues.
Buyers of manufactured homes typically shop at a number of locations prior
to purchasing a home. The Company believes that it provides most of its dealers
with a marketing advantage because of the dealer's ability to represent that the
Company's homes can be customized to meet the individual preferences of the
customer.
WARRANTY, QUALITY CONTROL AND SERVICE
The Company endeavors to adhere to strict quality standards and
continuously refines its production procedures. In addition, in accordance with
the construction codes promulgated by the Department of Housing and Urban
Development ("HUD"), an independent HUD-approved, third-party inspector inspects
each of the Company's manufactured homes for compliance during construction at
the Company's manufacturing facilities. See "-Regulation."
The Company provides the initial home buyer with a HUD-mandated, one-year
limited warranty against manufacturing defects in the home's construction. In
addition, there are often direct warranties that are provided by the
manufacturer of components and appliances.
The Company has experienced quality assurance personnel at each of its
manufacturing facilities to provide on-site service to dealers and home buyers.
In order to respond more quickly to customer service requests and to maintain a
high level of customer satisfaction, the Company has increased its customer
service staff. Enhanced quality assurance systems are expected to contribute to
the value and appeal of the Company's homes and, over the long term, to reduce
consumer warranty claims.
INDEPENDENT DEALER FINANCING
Substantially all of the Company's independent dealers finance their
purchases through "floor plan" arrangements under which a financial institution
provides the dealer with a loan for the purchase price of the home and maintains
a security interest in the home as collateral. In connection with a floor plan
arrangement, the financial institution which provides the independent dealer
financing customarily requires the Company to enter into a separate repurchase
agreement with the financial institution, under which the Company is obligated,
upon default by the independent dealer, to repurchase the homes at the Company's
original invoice price plus certain administrative and shipping expenses.
Repurchases were $8.7 million, $4.9 million, and $1.4 million for the years
ended 2000, 1999, and 1998 respectively. At December 29, 2000, the Company's
contingent repurchase liability under floor plan financing arrangements through
independent dealers was approximately $61 million. While homes that have been
repurchased by the Company under floor-plan financing arrangements are usually
sold to other dealers, no assurance can be given that the Company will be able
to sell to other dealers homes which it may be obligated to repurchase in the
future under such floorplan financing arrangements or that the Company will not
suffer losses with respect to, and as a consequence of, those arrangements. No
dealer accounted for more than 6.2% of the Company's net revenues in each of the
past three fiscal years. See "-Sales Network." The Company does not view any
single independent dealer as being a material customer. The Company also
finances substantially its entire retail inventory through floor plan
arrangements and a line of credit.
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COMPETITION
The manufactured housing industry is highly competitive at both the
manufacturing and retail levels, with competition based upon numerous factors,
including total price to the dealer, customization to homeowners' preferences,
product features, quality, warranty repair service and the terms of dealer and
retail customer financing. The Company does not view any of its competitors as
being dominant in the industry. However, a number of these firms are larger than
the Company and possess greater manufacturing and financial resources. In
addition, there are numerous firms producing manufactured homes in the
southeastern and southcentral United States, many of which are in direct
competition with the Company in the states where its homes are sold. Certain of
the Company's competitors provide retail customers with financing from captive
finance subsidiaries. While the Company has formed its Wenco 21 joint venture to
provide consumer financing to customers through 21st Century, a contraction in
consumer credit could provide an advantage to those competitors with established
internal financing capabilities.
The capital requirements for entry as a producer in the manufactured
housing industry are relatively small. However, the Company believes that the
qualifications for obtaining inventory financing, which are based upon the
financial strength of the manufacturer and each of its dealers, have recently
become more difficult to meet due to the departure of financial institutions
from the market and dealers requiring principal and curtailment payments from
the manufacturers.
Manufactured homes compete with new site-built homes, as well as
apartments, townhouses, condominiums and existing site-built and manufactured
homes.
The Company believes that its willingness to customize floor plans and
design features to match customer preferences is the principal factor which
differentiates it from most of its competitors in the manufactured housing
industry.
REGULATION
The Company's manufactured homes are subject to a number of federal, state
and local laws. Construction of manufactured housing is governed by the National
Manufactured Housing Construction and Safety Standards Act of 1974 ("1974 Act").
In 1976, HUD issued regulations under this Act establishing comprehensive
national construction standards. The HUD regulations cover all aspects of
manufactured home construction, including structural integrity, fire safety,
wind loads, thermal protection, plumbing and electrical. Such regulations
preempt conflicting state and local regulations. The Company's manufacturing
facilities and the plans and specifications of its manufactured homes have been
approved by a HUD-designated inspection agency. An independent, HUD-approved
third-party inspector checks each of the Company's manufactured homes for
compliance during at least one phase of construction. In 1994, HUD amended
manufactured home construction safety standards to improve the wind force
resistance of manufactured homes sold for occupancy in coastal areas prone to
hurricanes. Failure to comply with the HUD regulations could expose the Company
to a wide variety of sanctions, including closing the Company's plants. The
Company believes its manufactured homes meet or surpass all present HUD
requirements.
Manufactured, modular and site-built homes are all built with
particleboard, paneling and other products that contain formaldehyde resins.
Since February 1985, HUD has regulated the allowable concentration of
formaldehyde in certain products used in manufactured homes and required
manufacturers to warn purchasers concerning formaldehyde associated risks. The
Company currently uses materials in its manufactured homes that meet HUD
standards for formaldehyde emissions and that otherwise comply with HUD
regulations in this regard. In addition, certain components of manufactured
homes are subject to regulation by the Consumer Product 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 are evaluating the effects of formaldehyde. In February
1983, the Federal Trade Commission adopted regulations requiring disclosure of
manufactured homes' insulation specifications.
The Company's manufactured homes are also subject to local zoning and
housing regulations. A number of states require manufactured home producers to
post bonds to ensure the satisfaction of consumer warranty claims. A number of
states have adopted procedures governing the installation of manufactured homes.
Utility connections are subject to state and local regulation, and must be
complied with by the dealer or other person installing the home.
The Company is subject to the Magnuson-Moss Warranty Federal Trade
Commission Improvement Act, which regulates the descriptions of warranties on
products. The description and substance of the Company's warranties are also
subject to a variety of state laws and regulations.
Wenco Finance, the Company's finance subsidiary, is subject to a number of
state and local licensing requirements which are applicable to businesses
engaged in the origination and servicing of consumer loans. In addition, both
Wenco Finance and Wenco 21, the Company's finance joint venture with 21st
Century, are also subject to a variety of federal and state laws and regulations
regulating consumer finance, including the Truth in Lending Act, which regulates
lending procedures and mandates certain loan disclosures with respect to
financing offered to consumers. Failure by Wenco Finance or Wenco 21 to comply
with any of these laws and regulations could have a material adverse effect on
the Company's business and results of operation.
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MH Transport, the Company's trucking subsidiary, is subject to federal and
state laws and regulations which apply to motor vehicle carriers operating in
interstate and intrastate commerce. Failure by MH Transport to comply with any
of these laws and regulations could have a material adverse effect on the
Company's business and results of operations.
EMPLOYEES
As of December 29, 2000, the Company employed 1,390 full-time employees
involved in the following functional areas: manufacturing, 994; sales, 82; field
service, 88; administration and clerical, 139; drivers, 40; and management, 47.
The Company's manufacturing operations require primarily semi-skilled labor and
personnel levels fluctuate with seasonal changes in production volume.
None of the Company's employees are represented by a collective bargaining
agreement. The Company believes that it has a good relationship with its
employees, and it has never experienced any work stoppage.
EXECUTIVE OFFICERS
Information concerning the Executive Officers of the Company is as follows.
Executive Officers are elected annually by and serve at the pleasure of the
Board of Directors.
Wendell L. Batchelor (age 58) is the Founder and Chairman of the Company
and has been the Company's Chief Executive Officer and a Director since the
Company's incorporation in 1982. Mr. Batchelor was President of the Company from
1982 to 1999. From 1971 to 1982, Mr. Batchelor was General Manager of Shiloh
Homes, a division of Winston Industries. Mr. Batchelor was Sales Manager of
Marietta Homes, a division of Winston Industries, from 1968 to 1971. From 1966
to 1968, Mr. Batchelor was a Sales Representative for Madrid Homes. Mr.
Batchelor has served in the past as Chairman of the Alabama Manufacturer's
Housing Institute.
Keith O. Holdbrooks (age 40) was elected as the Company's President in June
1999 by the Company's Board of Directors and has served as the Company's Chief
Operating Officer since August 1996. From 1991 to 1996, Mr. Holdbrooks served as
General Manager for Southern Homes, a division of the Company, and from 1989 to
1991 served as Sales Manager for Southern Homes. From 1985 to 1989 Mr.
Holdbrooks served as salesman for Southern Lifestyle, a division of the Company.
Keith W. Brown (age 44) has served as the Company's Chief Financial Officer
since the Company's incorporation in 1982 and as a Director since 1989. Mr.
Brown served as the Company's Secretary from 1982 to January 1993 and resumed
that office in September 1993. He was elected Treasurer in January 1993. From
1980 to 1982, Mr. Brown served as Controller for Shiloh Homes, a division of
Winston Industries.
Dan Batchelor (age 48) serves as the Company's General Counsel and Vice
President. Mr. Batchelor practiced commercial and tort litigation and business
law for almost twenty years before joining the Company in 1998. Mr. Batchelor
received his B.A. from the University of Virginia, 1974; J.D. from Cumberland
School of Law of Samford University, 1978; and LL.M. from the University of
Miami School of Law, 1979. He is admitted to practice in Alabama, Georgia and
Florida and various Federal jurisdictions.
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ITEM 2. PROPERTIES
The Company's manufactured home segment currently operates five home
manufacturing facilities (four in Alabama, and one in Texas) and three component
supply facilities (all in Alabama). The facilities used by the Company's
manufactured home segment are as follows:
Building Leased or
Unit Location Square Feet Owned
- --------------------------------------- --------------------- ------------------ --------------------
Manufacturing
Southern Energy Addison, AL 72,000 Owned
Southern Lifestyle Addison, AL 62,500 Owned
Southern Homes
Plant #1 Double Springs, AL 60,000 Owned
Plant #4 Lynn, AL 90,000 Owned
Southern Energy Homes of Texas Fort Worth, TX 98,300 Owned
Component Supply
Classic Panel Hartselle, AL 24,000 Owned
Wind-Mar Supply Addison, AL 22,000 Owned
Trimmasters Haleyville, AL 50,000 Leased
The Company currently operates 17 retail sales centers, seven of which are
in Alabama, four of which are in South Carolina, three in Kentucky, two in
Tennessee, and one in Mississippi. Each of the retail centers are currently
leased and such lease terms range from one to five years.
The corporate headquarters is located in Addison, Alabama and occupies
approximately 15,400 square feet of office space. MH Transport owns and occupies
an approximate 1,800 square foot office building in Double Springs, Alabama.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings incidental to its business.
The company typically issues a one-year warranty on new manufactured homes. The
majority of these legal proceedings are claims related to warranty on
manufactured homes, or employment issues such as worker's compensation claims.
Management believes that adequate reserves are maintained for such claims. In
the opinion of management, after consultation with legal counsel, the ultimate
liability, if any, with respect to these proceedings will not materially affect
the financial position or results of operations of the Company; however, the
ultimate resolution of these matters, which could occur within one year, could
result in losses in excess of the amounts reserved.
ITEM 4. SUBMISSION TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Stockholders of the Company
during the fourth quarter of fiscal year 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Record Holders
As of March 27, 2001, there were 83 record holders. This number does not
include those stockholders holding stock in "nominee" or "street" name.
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Stock Price Performance
The Company's Common Stock is publicly traded on the Nasdaq Stock Market
National Market System. The following table represents the high and low bid
price for each quarter of the last two fiscal years.
2000 1999
Bid Price Range Bid Price Range
High Low High Low
--------- --------- ---------- ----------
First Quarter $2.44 $1.13 $7.00 $4.25
Second Quarter 1.44 1.00 5.63 4.25
Third Quarter 2.25 .84 5.31 2.00
Fourth Quarter 2.13 .44 3.00 1.88
Dividends
It is the Company's current policy to retain any future earnings to finance
the continuing development of its business and not to pay dividends. The company
has not paid any dividends since the initial public offering of its stock.
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Selected Financial Data
Southern Energy Homes, Inc. and subsidiaries (Dollars in thousands, except per
share data)
YEAR ENDED
---------------------------------------------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1, JANUARY 2, JANUARY 3,
------------ ------------ ---------- ---------- ----------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
OPERATING DATA
Net revenues (1) $ 185,388 $ 263,898 $ 319,595 $ 309,324 $ 320,590
Gross Profit (1) 34,297 52,069 67,925 58,604 57,393
Selling, general and
administrative (1) 41,428 44,760 47,730 36,009 31,380
Provision for credit losses 1,719 524 300 187 1,177
Amortization of intangibles 436 671 792 853 517
Start-up costs (3) -- -- 739 -- --
Impairment charges (2) 6,039 7,073 934 2,146 --
Operating income (loss) (15,325) (959) 17,430 19,409 24,319
Interest expense 2,538 1,994 2,392 1,412 131
Interest income 425 340 854 470 593
Income taxes (benefit) (326) (1,020) 6,089 7,092 9,535
Cumulative effect of
accounting change (3) -- -- 507 -- --
Net income (loss) (17,112) (1,593) 9,296 11,375 15,246
Net income (loss) per share:
Basic $ (1.41) $ (.13) $ 0.69 $ 0.76 $ 1.01
Diluted $ (1.41) $ (.13) $ 0.68 $ 0.75 $ 1.00
Weighted average shares
outstanding:
Basic 12,132,990 12,176,705 13,440,607 15,002,006 15,122,578
Diluted 12,132,990 12,176,705 13,647,216 15,129,530 15,260,484
BALANCE SHEET DATA
Total assets $ 95,187 $ 122,014 $ 121,656 $ 123,253 $ 112,658
Long-term debt -- 2,464 3,569 4,720 --
Stockholders' equity $ 51,672 $ 68,784 $ 73,449 $ 79,767 $ 77,377
(1) Net revenues and gross profit have been restated to reclassify delivery
revenue from sales, general and administrative expense to revenue.
(2) During the fourth Quarter of 2000, the Company recorded a pre-tax charge of
$1.6 million associated with the impairment of intangible assets and exit costs
related to certain of the Company's retail centers. During the second Quarter of
2000, the Company recorded a pre-tax charge of $4.4 million associated with the
8
10
impairment of intangible assets and exit costs related to certain of the
Company's retail centers. During the fourth Quarter of 1999, the Company
recorded a one-time pre-tax charge of $686,000 associated with closing of three
retail centers, one in Kentucky and two in South Carolina. During the third
quarter of 1999, the Company recorded a pre-tax charge of $6.4 million
associated with closing of its manufacturing facility in North Carolina. During
the second quarter of 1997, the Company recorded a $2.1 million pre-tax
non-recurring charge in connection with its decision to close its manufactured
housing facility located in Pennsylvania . During the fourth quarter of 1998,
the Company recorded an additional pre-tax charge of $934,000 due to additional
warranty, workmen's compensation, and other costs incurred related to the
closing of our Pennsylvania facility in 1997.
(3) During the fourth quarter of 1998, the Company recorded pre-tax charges of
$739,000 for the current year and $825,000 for prior years due to the company
adopting a change in accounting principle requiring the expensing of start-up
costs in accordance with AICPA Statement of Position 98-5, "Reporting on the
Cost of Start-Up Activities."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
As a whole, the manufactured housing industry has been adversely affected by
various economic factors, and has struggled in the past several quarters. The
current situation in the manufactured housing industry is the result of many
factors. Rapid industry growth over the past 10 years resulted in an increase in
the overall number of dealers, an increase in manufacturing output and an
increase in the number of homes available at the retail level. These larger
inventories and the generally slower reduction of those inventories has led to
increased price competition and reduced profits. Tightening credit and
increasing interest rates have compounded the situation and negatively affected
the industry's overall financial performance, with virtually all manufacturers
and retailers being impacted. Southern Energy Homes has not been excluded from
this group; however, the Company has taken carefully planned steps designed to
decrease costs and improve efficiency. In 1999 and 2000 these steps included
closing manufacturing facilities, consolidating divisions, and selling
unprofitable retail centers. Management continues to monitor the situation and
remains prepared to implement additional measures necessary to emerge
financially sound from this industry downturn and are prepared to take advantage
of any future opportunities presented by any increase in the demand for
affordable housing. Management is confident in the long-term future for the
manufactured housing industry and Southern Energy Homes, Inc.
In light of current industry conditions, the Company expects that there will be
future declines in wholesale and retail revenues and related net profit margins,
which could have a material adverse effect on the Company's operating results
and liquidity.
YEAR ENDED DECEMBER 29, 2000 AS COMPARED WITH YEAR ENDED DECEMBER 31, 1999
NET REVENUES
Total net revenues (gross revenues less volume discounts, returns, and
allowances) for the year ended December 29, 2000 were $185.4 million, which
represented a decline of 29.8% over 1999 revenues of $263.9 million.
Net revenues of the manufactured home segment were $152.0 million (including
intersegment revenues of $32.2 million) for the year ended December 29, 2000 as
compared with $215.7 million (including intersegment revenues of $39.4 million)
for the prior year period, a decrease of $63.7 million, or 29.6%. The decline in
sales to dealers was primarily attributable to decreased demand and closure of
an Alabama manufacturing plant in February 2000. Total homes shipped in the year
ended December 29, 2000 were 5,504, down 28% from the number of homes shipped in
the prior year period. The decrease in homes sold was attributable to an overall
industry decline in the Company's core market areas and increased competition
within these market areas. The average wholesale price per home in 2000 was
$26,055, as compared with $26,807 in 1999, a decrease of 2.8%.
On February 11, 2000, an electrical fire at the Company's frame shop forced the
Company to suspend operations at two of its manufacturing plants located in
Double springs, Alabama. On February 15, 2000, the Company reopened one of the
plants. With the reopening of this plant and the shifting of some of the
production to another plant in Lynn, Alabama, production returned to 90% of
pre-fire levels. The Company has business interruption insurance and while the
temporary plant shutdown may have an impact on the Company's revenues, the
Company does not anticipate that these shutdowns will have a material impact on
the Company's financial position or results of operations.
Net revenues from the retail sales segment were $49.6 million for the year ended
December 29, 2000 as compared with $64.0 million for the prior year period, a
decrease of $14.4 million, or 22.5%. The decline in retail sales was primarily
attributable to increased competition and the Company operating 11 fewer retail
centers, during the fiscal year ended December 29, 2000, compared to the prior
period. The number of total homes (new and used) sold by the retail segment in
the year ended December 29, 2000 was 1,539, down 14.7% from the number of homes
shipped in the prior year period. The average retail price per new home in 2000
was $42,174, as compared with $45,402 in 1999, a decrease of 7.1%.
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Net revenues from the supply segment were $30.1 million (including intersegment
revenues of $25.6 million) for the year ended December 29, 2000, as compared
with $46.9 million (including intersegment revenues of $37.4 million) for the
prior year period, a decline of $16.8 million, or 35.8%. The decline in supply
sales was primarily attributable to the decline in sales volume in the
manufactured home segment.
Revenues from the Company's retail consumer financing activities were $1.1
million for the year ended December 29, 2000, as compared with $1.3 million for
the prior year period. Wenco Finance originated and serviced consumer loans
primarily for homes manufactured by the Company, until February 1997, at which
time the Company formed a joint venture with 21st Century Mortgage Corporation
("21st Century"). The joint venture, Wenco 21, offers consumer financing for
homes manufactured by the Company as well as for other homes sold through its
retail centers and independent dealers. However, Wenco Finance continues to
generate certain loans to consumers for the purchase of retail homes.
GROSS PROFIT
Gross profit consists of net revenues less the cost of sales, which includes
labor, materials, and overhead. Gross profit for the year ended December 29,
2000 was $34.3 million, or 18.5% of net revenues, as compared with $52.7
million, or 19.7% of net revenues, in the prior year period. This decline in the
gross profit percentage was attributable primarily to increased competitive
pricing at wholesale, and labor inefficiencies in operating at lower capacities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses include primarily sales
commissions, advertising expenses, freight costs, salaries for support
personnel, administrative compensation, insurance costs, and professional fees.
Selling, general and administrative expenses were $41.4 million, or 22.3% of net
revenues, during the year ended December 29, 2000, as compared with $44.8
million, or 17.0% of net revenues, for the same period of the prior year. The
increase in selling, general and administrative expenses as a percentage of
sales was attributable to the following factors: increased dealer interest
payments to remain competitive in market areas, increased freight expenses due
to fuel increases, and increased legal fees.
OPERATING INCOME
See Footnote 11 to the financial statements included with this report, for
description of Revenues, Gross Profit and Operating Income by segments.
PROVISION FOR CREDIT LOSSES
The Company provides for estimated credit losses based on industry experience,
historical loss experience, current repossession trends and costs, and
management's assessment of the current credit quality of the loan portfolio. The
provision for credit losses for the year ended December 29, 2000 was $1.7
million as compared with $524,000 for the year ended December 31, 1999. The
increase in the provision was due to deterioration of the loan portfolio and to
increased losses incurred on the loan portfolio, which amounted to $1.2 million
in fiscal 2000 compared to $.5 million in fiscal 1999.
IMPAIRMENT AND OTHER CHARGES
During 2000, the Company decided to close eleven of its 28 retail centers. The
decision was based primarily on losses incurred at these centers over the last
several months. Three retail centers were closed in each of the first three
quarters of fiscal 2000 and two retail centers were closed in the fourth quarter
of fiscal 2000. In connection with the decision to close these retail centers,
the Company recorded a pre-tax charge of $4.4 million during the second quarter
consisting of the impairment of the intangible assets of $3.8 million and exit
costs of $0.6 million associated with rental commitments and leasehold
improvements on retail centers which the Company has committed to close. During
the fourth quarter of 2000, the Company recorded an additional pre-tax charge of
$1.6 million associated with the impairment of intangible assets and exit costs
related to certain of its retail centers. Although these amounts represent
management's best estimate of total costs to close these centers, the actual
cost could ultimately differ from these amounts. The Company has recorded these
amounts as an impairment charge in the accompanying statement of operations for
the fiscal year ended December 29, 2000. During the fiscal year ended December
29, 2000 and December 31, 1999, these eleven centers generated 6.0% and 7.3%,
respectively, of the total revenues of the Company. The impact of these centers
on the operating income of the Company, excluding the impairment charges, was a
pre-tax loss of $3.1 million and a pre-tax loss of $2.1 million during the
fiscal year ended December 29, 2000 and December 31, 1999, respectively. The
Company continues to evaluate its unprofitable retail centers and future retail
center closings could happen which would result in further impairment charges.
10
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INTEREST EXPENSE
Interest expense for the year ended December 29, 2000 was $2.5 million as
compared with $2.0 million for the year ended December 31, 1999. The increase in
interest expense in the current year was a result of higher interest rates
associated with the Company financing its retail inventory through the Company's
line of credit and higher loan balances.
INTEREST INCOME
Interest income for the year ended December 29, 2000 was $425,000 as compared
with $340,000 for the year ended December 31, 1999. The increase in interest
income reflects higher average cash and cash equivalent balances during the year
ended December 29, 2000.
PROVISION FOR INCOME TAXES
Income taxes are provided for based on the tax effect of revenue and expense
transactions included in the determination of pre-tax book income. Income tax
benefit for the year ended December 29, 2000 was $326,000 or an effective tax
rate of 2%, compared with income tax benefit of $1.0 million, or an effective
tax rate of 39%, for the year ended December 31, 1999. During fiscal 2000, the
Company recorded a valuation allowance of $4.4 million related to deferred
income tax assets in accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 109. Because the Company has operated at a
loss in its two most recent fiscal years and because management believes
difficult competitive conditions will continue for the foreseeable future,
management believes that under the provisions of SFAS No. 109, it is no longer
appropriate to record income tax benefits on current losses in excess of
anticipated refunds of taxes previously paid. The Company has established
valuation allowances against the tax benefits of substantially all its net
operating loss carry forwards and deductible temporary differences between
financial and taxable income.
YEAR ENDED DECEMBER 31, 1999 AS COMPARED WITH YEAR ENDED JANUARY 1, 1999
NET REVENUES
Total net revenues (gross revenues less volume discounts, returns, and
allowances) for the year ended December 31, 1999 were $263.9 million, which
represented a decline of 17.4% over 1998 revenues of $320.0 million.
Net revenues of the manufactured home segment were $215.7 million (including
intersegment revenues of $39.4 million) for the year ended December 31, 1999 as
compared with $257.3 million (including intersegment revenues of $40.1 million)
for the prior year period, a decrease of $41.6 million, or 16.2%. The decline in
sales to dealers was primarily attributable to decreased demand and closure of
the North Carolina plant in July 1999. Total homes shipped in the year ended
December 31, 1999 was 7,641, down 14% from the number of homes shipped in the
prior year period. The decrease in homes sold was attributable to an overall
industry decline in the Company's core market areas and increased competition
within these market areas. The average wholesale price per home in 1999 was
$26,807, as compared with $27,522 in 1998, a decrease of 2.6%.
Net revenues from the retail sales segment were $64.0 million for the year ended
December 31, 1999 as compared with $76.5 million for the prior year period, a
decrease of $12.5 million, or 16.4%. The decline in retail sales was primarily
attributable to increased competition and the Company operating five fewer
retail centers, during the fiscal year ended December 31, 1999, compared to the
prior period. Total homes (new and used) sold by the retail segment in the year
ended December 31, 1999 was 1,840 down 15.4% from the number of homes shipped in
the prior year period. The average retail price per new home in 1999 was
$45,402, as compared with $44,019 in 1998, an increase of 3%.
Net revenues from the supply segment were $46.9 million (including intersegment
revenues of $37.4 million) for the year ended December 31, 1999 as compared with
$57.3 million (including intersegment revenues of $44.9 million) for the prior
year period, a decline of $10.4 million, or 18.2%. The decline in supply sales
was primarily attributable to the decline in sales volume in the manufactured
home segment.
Revenues from the Company's retail consumer financing activities were $1.3
million for the year ended December 31, 1999, as compared with $1.1 million for
the prior year period. This increase was attributable to the increase in lending
activity by the Company's wholly owned subsidiary, Wenco Finance, Inc. ("Wenco
Finance"). Wenco Finance originated and serviced consumer loans primarily for
homes manufactured by the Company, until February 1997, at which time the
Company formed a joint venture with 21st Century Mortgage Corporation ("21st
Century"). The joint venture, Wenco 21, offers consumer financing for homes
manufactured by the Company as well as for other homes sold through its retail
centers and independent dealers. However, Wenco Finance continues to generate
certain loans to consumers for the purchase of retail homes.
11
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GROSS PROFIT
Gross profit consists of net revenues less the cost of sales, which includes
labor, materials, and overhead. Gross profit for the year ended December 31,
1999 was $52.1 million, or 19.7% of net revenues, as compared with $67.9
million, or 21.3% of net revenues, in the prior year period. This decline in the
gross profit percentage was attributable primarily to increased competitive
pricing at wholesale, the inability to pass on increased material prices due to
competitive pricing in the industry, labor inefficiencies in operating at lower
capacities, and increased warranty expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses include primarily sales
commissions, advertising expenses, freight costs, salaries for support
personnel, administrative compensation, insurance costs, and professional fees.
Selling, general and administrative expenses were $44.8 million, or 17.0% of net
revenues, during the year ended December 31, 1999, as compared with $47.7
million, or 14.9% of net revenues, for the same period of the prior year. The
increase in selling, general and administrative expenses as a percentage of
sales was attributable primarily to the higher level of fixed expenses generally
associated with the Company's retail operation, increased sales allowance and
dealer interest payments to remain competitive in market areas and increased
legal fees.
OPERATING INCOME
See Footnote 11 for description of Revenues, Gross Profit and Operating Income
by segments.
PROVISION FOR CREDIT LOSSES
The Company provides for estimated credit losses based on industry experience,
historical loss experience, current repossession trends and costs, and
management's assessment of the current credit quality of the loan portfolio. The
provision for credit losses for the year ended December 31, 1999 was $524,000 as
compared with $300,000 for the year ended January 1, 1999.
IMPAIRMENT CHARGE
During 1999, the Company recorded a pre-tax charge of $6.4 million associated
with the closing of its manufacturing facility in North Carolina. During fiscal
years ended January 1, 1999 and January 2, 1998 this facility generated 6.1% and
5.9%, respectively, of the total revenues of the Company. During 1999, The
Company also recorded a pre-tax charge of $686,000 associated with closing of
three retail centers, one in Kentucky and two in South Carolina. Revenues
generated by these three retail centers were less than 1% of total revenues of
the Company for the fiscal years ended January 1, 1999 and January 2, 1998.
INTEREST EXPENSE
Interest expense for the year ended December 31, 1999 was $2.0 million as
compared with $2.4 million for the year ended January 1, 1999. The decrease in
interest expense in the current year was a result of lower interest rates
associated with the Company financing its retail inventory through the Company's
line of credit versus floor plan financing with outside lenders at higher
interest rates.
INTEREST INCOME
Interest income for the year ended December 31, 1999 was $340,000 as compared
with $854,000 for the year ended January 1, 1999. The decrease in interest
income reflects lower average cash and cash equivalent balances during the year
ended December 31, 1999.
PROVISION FOR INCOME TAXES
Income taxes are provided for based on the tax effect of revenue and expense
transactions included in the determination of pre-tax book income. Income tax
benefit for the year ended December 31, 1999 was $1.0 million, or an effective
tax rate of 39%, compared with income tax expense of $6.1 million, or an
effective tax rate of 38.3%, for the year ended January 1, 1999. The decline in
income tax expense is a result of the net loss in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since its organization, the Company has financed its operations primarily with
cash generated from a combination of operations, stock offerings, and
borrowings.
12
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The Company is continuing to monitor its cash position in light of present
trends. The Company paid off all of its long term debt and lowered its
outstanding balance on its line of credit from $25.0 million to $20 million
during fiscal 2000.
During the year ended December 29, 2000, the Company's cash provided by
operations was approximately $3.1 million. Although net loss for the year was
$17.1 million, this loss included the following non-cash charges: impairment
charges of $6.0 million, depreciation expense of $2.6 million, provision for
deferred income taxes of $4.0 million, and provision for credit losses of $1.7
million. Cash provided by operations also included decreased accounts receivable
of $3.3 million and decreased inventories of $11.2 million, partially offset by
refundable income taxes of $2.5 million and increased accounts payable and
accrued liabilities of $5.5 million. In addition to cash provided by operating
activities, other significant items affecting cash flows included capital
expenditures of $1.8 million, net repayments of notes payable of $1.1 million
and repayments of long-term debt of $3.6 million.
During the year ended December 31, 1999, the Company's cash provided by
operations was approximately $2.6 million. Cash provided by operations included
decreased accounts receivable and inventories of $4.8 million and impairment
charges of $7.1 million, partially offset by a net loss of $1.6 million,
decreased accounts payable and accrued liabilities of $4.8 million and loan
originations of $1.2 million. In addition to cash provided by operating
activities, other significant items affecting cash flows included capital
expenditures of $3.3 million, repurchase of common stock of $3.1 million,
increased net borrowings of $8.6 million and the repayment of long-term debt of
$1.1 million.
At December 29, 2000, the Company's net working capital was $6.4 million,
including $6.1 million in cash and cash equivalents, as compared with $18.7
million at December 31, 1999, including $9.3 million in cash and cash
equivalents. The decrease in net working capital was primarily attributable to a
decrease in inventories of $11.2 million, a decrease in accounts receivable of
$3.3 million and a decrease in cash and cash equivalent of $3.3 million,
partially offset by a decrease in notes payable of $1.1 million, a decrease in
current maturities of long-term debt of $1.1 million, a decrease in accounts
payable of $2.2 million, and a decrease in volume incentives payable of $1.9
million.
At December 29, 2000 the Company had a $28.5 million secured line of credit,
which was renewable annually with interest at the London Interbank Offered Rate
("LIBOR") plus 1.5%. The Company had outstanding borrowings of $20.0 million on
this line at December 29, 2000 and $25.0 million in outstanding borrowings at
December 31, 1999.
On March 9, 2001, the Company renewed its bank line of credit. As part of the
renewal, the maximum line of credit amount was increased to $40.0 million. The
renewed line of credit is secured by substantially all of the Company's assets,
matures on March 8, 2004 and bears interest at the Prime rate plus 1.0%.
Substantially all of the Company's independent dealers finance their purchases
through "floor plan" arrangements under which a financial institution provides
the dealer with a loan for the purchase price of the home and maintains a
security interest in the home as collateral. In connection with a floor plan
arrangement, the financial institution which provides the independent dealer
financing customarily requires the Company to enter into a separate repurchase
agreement with the financial institution under which the Company is obligated,
upon default by the independent dealer, to repurchase the homes at the Company's
original invoice price plus certain administrative and shipping expenses.
Repurchases were $8.7 million, $4.9 million, and $1.4 million for the years
ended 2000, 1999, and 1998 respectively. At December 29, 2000, the Company's
contingent repurchase liability under floor plan financing arrangements through
independent dealers was approximately $61 million. While homes that have been
repurchased by the Company under floor-plan financing arrangements are usually
sold to other dealers, no assurance can be given that the Company will be able
to sell to other dealers homes which it may be obligated to repurchase in the
future under such floor-plan financing arrangements or that the Company will not
suffer losses with respect to, and as a consequence of, those arrangements.
CAPITAL EXPENDITURES
The Company does not currently plan to make any material capital expenditures
during the next twelve months.
INFLATION
The Company believes that the relatively moderate rate of inflation over the
past few years has not had a significant impact on its sales or profitability.
The Company has in the past been able to pass on most of the increases in its
costs by increasing selling prices, although there can be no assurance that the
Company will be able to do so in the future. Increased competition in the
industry has generally prevented the Company from passing on such increases.
The following discussion about the Company's interest rate risk includes
"forward looking statements" that involve risks and uncertainties. Actual
results could differ materially from those projected in the forward looking
statements.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK.
Historically the Company has not entered into derivatives contracts to
either hedge existing risk or for speculative purposes. The Company also
does not and has not entered into contracts involving derivative financial
instruments or derivative commodity instruments. Pertinent provisions of
Regulation S-K call for disclosures to clarify exposures to market risk
associated with activities in derivative financial instruments, other
financials instruments and derivative commodity instruments. The Regulation
defines "other financial instruments" to include trade accounts receivable,
loans and structured notes. The Company does not utilize derivative
instruments to manage such risks. The Company's principal credit agreement
bears a floating interest rate of 1.5% over LIBOR. Accordingly, the Company
is subject to market risk associated with changes in interest rates. At
September 29, 2000, $20 million was outstanding under the credit agreement.
As of December 31, 1999, the principal amount outstanding under the credit
agreement was $25.0 million. Assuming that amount outstanding, a 1%
increase in the applicable interest rate during 2000 would result in
additional interest expense of approximately $200,000, which would reduce
cash flow and pre-tax earnings dollar for dollar. Accounts receivable: Most
of the Company's sales of manufactured homes are pre-sold, such that orders
exist before construction begins. When manufactured homes are sold to
dealers as inventory, such homes are paid for by dealer's floor plan
financing, such that funds ordinarily transfer to the Company from the
dealer's floor plan lender within 21 days. Management thus does not
perceive that the Company is subject to a material market risk with respect
to its accounts receivable.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 Forward-looking statements in this report, including without limitation,
statements relating to the adequacy of the Company's resources, are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned that such forward-looking statements
involve risks and uncertainties, which could cause actual results to differ
materially from those in any forward looking statements, including without
limitation: the cyclical and seasonal nature of housing markets; the
availability of financing for prospective purchasers of the Company's homes; the
amount of capital that the Company may commit to its Wenco 21 joint venture to
make available consumer loans; the performance of the loans held by the
Company's finance subsidiary; the availability and pricing of raw materials; the
concentration of the Company's business in certain regional markets; the
Company's ability to execute and manage its operating plans; the availability of
labor to implement those plans; the highly competitive nature of the
manufactured housing industry; Federal, state and local regulation of the
Company's business; the Company's contingent repurchase liabilities with respect
to dealer financing; the Company's reliance on independent dealers; and other
risks indicated from time to time in the Company's filings with the Securities
and Exchange Commission.
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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Consolidated Balance Sheets
Southern Energy Homes, Inc. and subsidiaries
DECEMBER 29, DECEMBER 31,
2000 1999
------------- -------------
Assets
Current Assets:
Cash and cash equivalents $ 6,054,000 $ 9,342,000
Accounts receivable, less allowance for doubtful accounts of
$168,000 and $470,000, respectively 13,560,000 16,897,000
Inventories 24,161,000 35,376,000
Refundable income taxes 5,055,000 2,579,000
Deferred tax benefits 349,000 4,311,000
Prepayments and other 770,000 924,000
------------- -------------
49,949,000 69,429,000
------------- -------------
Property, plant, equipment:
Property, plant and equipment, at cost 36,188,000 35,598,000
Less accumulated depreciation and amortization (13,994,000) (11,967,000)
------------- -------------
22,194,000 23,631,000
------------- -------------
Intangibles and other non-current assets:
Installment contracts receivable, less allowance for credit losses of
$850,000 and $357,000, respectively 10,505,000 11,597,000
Goodwill, net 5,190,000 10,657,000
Investment in joint ventures 5,371,000 5,728,000
Other assets 1,978,000 972,000
------------- -------------
23,044,000 28,954,000
------------- -------------
$ 95,187,000 $ 122,014,000
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 28,049,000 $ 29,182,000
Current maturities of long-term debt -- 1,101,000
Accounts payable 1,963,000 4,168,000
Volume incentive payable 4,545,000 6,428,000
Accrued payroll related expenses 1,901,000 2,793,000
Accrued workers' compensation 1,668,000 1,915,000
Accrued warranty 2,590,000 3,034,000
Accrued other 2,799,000 2,145,000
------------- -------------
43,515,000 50,766,000
------------- -------------
Long-term debt -- 2,464,000
Commitments and contingencies (Note 7)
Stockholders' equity:
Preferred stock, $.0001 par value, 1,000,000 shares authorized, none outstanding -- --
Common stock, $.0001 par value, 40,000,000 shares authorized, 12,132,990
shares issued and outstanding at December 29, 2000 and December 31, 1999 1,000 1,000
Capital in excess of par 8,329,000 8,329,000
Retained earnings 43,342,000 60,454,000
------------- -------------
51,672,000 68,784,000
------------- -------------
$ 95,187,000 $ 122,014,000
============= =============
The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets.
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Consolidated Statements of Operations
Southern Energy Homes, Inc. and subsidiaries
Year Ended
---------------------------------------------------
December 29, December 31, January 1,
2000 1999 1999
------------- ------------- -------------
(52 Weeks) (52 Weeks) (52 Weeks)
------------- ------------- -------------
Net revenues $ 185,388,000 $ 263,898,000 $ 319,595,000
Cost of sales 151,091,000 211,829,000 251,670,000
------------- ------------- -------------
Gross profit 34,297,000 52,069,000 67,925,000
------------- ------------- -------------
Operating expenses:
Selling, general and administrative 41,428,000 44,760,000 47,730,000
Provision for credit losses 1,719,000 524,000 300,000
Amortization of intangibles 436,000 671,000 792,000
Start-up costs -- -- 739,000
Impairment charges 6,039,000 7,073,000 934,000
------------- ------------- -------------
49,622,000 53,028,000 50,495,000
------------- ------------- -------------
Operating income (loss) (15,325,000) (959,000) 17,430,000
Interest expense 2,538,000 1,994,000 2,392,000
Interest income 425,000 340,000 854,000
------------- ------------- -------------
Income (loss) before provision for income taxes and cumulative
effect of accounting change (17,438,000) (2,613,000) 15,892,000
Provision (benefit) for income taxes (326,000) (1,020,000) 6,089,000
------------- ------------- -------------
Income (loss) before cumulative effect of accounting change (17,112,000) (1,593,000) 9,803,000
Cumulative effect of accounting change, net of tax of $318,000 -- -- 507,000
------------- ------------- -------------
Net income (loss) $ (17,112,000) $ (1,593,000) $ 9,296,000
============= ============= =============
Per share data:
Income (loss) before cumulative effect of accounting change:
Basic $ (1.41) $ (0.13) $ 0.73
============= ============= =============
Diluted $ (1.41) $ (0.13) $ 0.72
============= ============= =============
Cumulative effect of accounting change, net of tax:
Basic: $ 0.00 $ 0.00 $ 0.04
============= ============= =============
Diluted $ 0.00 $ 0.00 $ 0.04
============= ============= =============
Net income (loss) per share:
Basic $ (1.41) $ (0.13) $ 0.69
============= ============= =============
Diluted $ (1.41) $ (0.13) $ 0.68
============= ============= =============
Weighted average number of common shares:
Basic 12,132,990 12,176,705 13,440,607
============= ============= =============
Diluted 12,132,990 12,176,705 13,647,216
============= ============= =============
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
16
18
Consolidated Statements of Stockholders' Equity
Southern Energy Homes, Inc. and subsidiaries
Common Stock Treasury Stock Capital
------------------------- --------------------------- in Excess Retained
Shares Amount Shares Amount of Par Earnings Total
------ ------ ------ ------ ------ -------- -----
Balance, January 2, 1998 15,572,326 $ 2,000 1,122,100 $(10,201,000) $ 37,215,000 $ 52,751,000 $ 79,767,000
Exercise of stock options 65,464 -- -- -- 458,000 -- 458,000
Issuance of common stock 1,100 -- -- -- 9,000 -- 9,000
Treasury stock repurchases -- -- 1,878,200 (16,081,000) -- -- (16,081,000)
Net income -- -- -- -- -- 9,296,000 9,296,000
------------ ---------- ------------ ------------ ------------ ------------ ------------
Balance, January 1, 1999 15,638,890 2,000 3,000,300 (26,282,000) 37,682,000 62,047,000 73,449,000
Treasury stock repurchases -- -- 505,600 (3,072,000) -- -- (3,072,000)
Retirement of treasury stock (3,505,900) (1,000) (3,505,900) 29,354,000 (29,353,000) -- --
Net loss -- -- -- -- -- (1,593,000) (1,593,000)
------------ ---------- ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 12,132,990 1,000 -- -- 8,329,000 60,454,000 68,784,000
Net loss -- -- -- -- -- (17,112,000) (17,112,000)
------------ ---------- ------------ ------------ ------------ ------------ ------------
Balance, December 29, 2000 12,132,990 $ 1,000 -- $ -- $ 8,329,000 $ 43,342,000 $ 51,672,000
============ ========== ============ ============ ============ ============ ============
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
17
19
Consolidated Statements of Cash Flows
Southern Energy Homes, Inc. and subsidiaries
Year Ended
--------------------------------------------
December 29, December 31, January 1,
2000 1999 1999
------------ ------------ ------------
(52 Weeks) (52 Weeks) (52 Weeks)
------------ ------------ ------------
Cash flows from operating activities:
Net income (loss) $(17,112,000) $ (1,593,000) $ 9,296,000
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Equity (income) loss of joint ventures 293,000 (1,317,000) (1,121,000)
Impairment charges 6,039,000 7,073,000 934,000
Depreciation of property, plant, and equipment 2,551,000 2,743,000 2,462,000
Provision (credit) for deferred income taxes 3,962,000 (2,392,000) 215,000
(Gain) loss on sale of property, plant, and equipment 255,000 (26,000) (50,000)
Loss on sale of retail centers -- 9,000 --
Amortization of intangibles 436,000 671,000 792,000
Cumulative effect of change in accounting principle, net -- -- 507,000
Provision for doubtful accounts receivable 63,000 313,000 20,000
Provision for credit losses on installment contracts 1,719,000 524,000 300,000
Origination of installment contracts (2,541,000) (1,197,000) (2,186,000)
Principal collected on originated installment contracts 1,914,000 206,000 383,000
Change in assets and liabilities, net of effect from purchase of
subsidiaries:
Accounts receivable 3,274,000 4,749,000 369,000
Inventories 11,215,000 164,000 (1,653,000)
Prepayments and other (953,000) 56,000 393,000
Refundable income taxes (2,476,000) (2,579,000) --
Accounts payable (2,205,000) (225,000) 944,000
Accrued liabilities (3,306,000) (4,544,000) (623,000)
------------ ------------ ------------
Total adjustments 20,240,000 4,228,000 1,686,000
------------ ------------ ------------
Net cash provided by operating activities 3,128,000 2,635,000 10,982,000
------------ ------------ ------------
Cash flows from investing activities:
Purchase of subsidiaries, net of cash acquired -- -- (7,171,000)
Capital expenditures (1,803,000) (3,255,000) (3,241,000)
Investments in joint ventures (445,000) (88,000) (78,000)
Distributions from joint ventures 442,000 640,000 --
Proceeds from sale of property, plant and equipment 88,000 104,000 50,000
Proceeds from sale of retail centers -- 594,000 --
------------ ------------ ------------
Net cash used in investing activities (1,718,000) (2,005,000) (10,440,000)
------------ ------------ ------------
Cash flows from financing activities:
Repurchase of treasury stock -- (3,072,000) (16,081,000)
Net borrowings (repayments) on notes payable (1,133,000) 8,626,000 2,815,000
Repayments of long-term debt (3,565,000) (1,103,000) (1,158,000)
Proceeds from exercise of stock options -- -- 458,000
Proceeds from issuance of common stock -- -- 9,000
------------ ------------ ------------
Net cash provided by (used in) financing activities (4,698,000) 4,451,000 (13,957,000)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (3,288,000) 5,081,000 (13,415,000)
Cash and cash equivalents at beginning of period 9,342,000 4,261,000 17,676,000
------------ ------------ ------------
Cash and cash equivalents at end of period $ 6,054,000 $ 9,342,000 $ 4,261,000
============ ============ ============
Supplemental cash flow information:
Cash paid for interest $ 1,993,000 $ 2,071,000 $ 2,531,000
Cash paid (refunded) for income taxes $ (2,197,000) $ 4,210,000 $ 5,091,000
The accompanying notes to consolidated financial statements are in integral part
of these consolidated statements.
18
20
Notes To Consolidated Financial Statements
Southern Energy Homes, Inc. and subsidiaries
1. THE COMPANY AND BASIS OF PRESENTATION:
Southern Energy Homes, Inc. (the "Company") has four reportable segments:
manufacturing, retail, component supply and consumer financing. The Company
produces manufactured homes, primarily on a custom basis, for wholesale to
dealers located primarily in the southeastern and south central regions of the
United States. Retail operations began in fiscal 1996 with the acquisition of a
retail home sales operation and expanded through various acquisitions (see Note
4). Retail sales are concentrated in the southeastern United States. The
component supply segment sells various supply products to the Company's
manufacturing segment and to third party customers. The Company offers consumer
financing for homes manufactured by the Company as well as other homes sold
through its retail centers and independent dealers through a joint venture,
Wenco 21, that was formed in February 1997 with 21st Century Mortgage
Corporation ("21st Century") (see Note 4). Prior to the formation of the joint
venture, the Company's wholly owned subsidiary, Wenco Finance, originated and
serviced consumer loans. Wenco Finance has now restricted its loan origination
activities and has engaged 21st Century to service its loan portfolio (See Note
5).
The Company is on a 52/53-week year with the fiscal year ending on the
Friday closest to the last day of December. The 2000, 1999, and 1998 fiscal
years included 52 weeks.
The Company's business is seasonal and cyclical with the potential for
significant fluctuations in earnings being affected by factors impacting the
broader housing market, including the availability and cost of customer
financing and changes in the cost of construction materials.
As a whole, the manufactured housing industry has been adversely affected
by various economic factors, and has struggled in the past several quarters. The
current situation in the manufactured housing industry is the result of many
factors. Rapid industry growth over the past 10 years resulted in an increase in
the overall number of dealers, an increase in manufacturing output and an
increase in the number of homes available at the retail level. These larger
inventories and the generally slower reduction of those inventories has led to
increased price competition and reduced profits. Tightening credit and
increasing interest rates have compounded the situation and negatively affected
the industry's overall financial performance. In response to industry
conditions, the Company has taken steps to decrease costs and improve
efficiency. In 1999 and 2000, these steps included closing manufacturing
facilities, consolidating divisions, and selling unprofitable retail centers.
Although management will continue to monitor the situation, there can be
assurance that these conditions will not result in future declines in wholesale
and retail revenues and related net profit margins, which could have material
adverse effect on the company's future operating results and liquidity.
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 reporting period. Actual results could differ from those estimates.
In the fourth quarter of fiscal 2000, the Company adopted the Financial
Accounting Standards Board's ("FASB") Emerging Issues Task Force ("EITF") Issue
No. 00-10, Accounting for Shipping and Handling Revenues and Costs. Such
adoption did not have any impact on the Company's reported results of
operations. Prior to adoption of EITF 00-10, the Company netted shipping
revenues, which were included in selling, general and administrative expenses
with the associated costs. Total shipping revenues for 2000, 1999, and 1998
amounted to $8,576,000, $10,888,000 and $12,631,000, respectively. Total
shipping costs, which were included in selling, general and administrative
expenses were $8,576,000, $10,888,000, and $12,631,000 during 2000, 1999 and
1998, respectively. Prior period amounts have been reclassified to conform with
the 2000 presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions
have been eliminated in the consolidated financial statements. The Company
accounts for its investments of 50% or less in joint ventures, where it does not
have the ability to control, on the equity basis of accounting. Therefore, the
Company's share of income/loss is recorded as equity income from its ventures in
the accompanying consolidated statements of operations (see Note 4).
19
21
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers cash and cash
equivalents to include cash on hand and highly liquid debt instruments and
investments purchased with an original maturity of three months or less.
INVENTORIES
Inventories are valued at first-in, first-out ("FIFO") cost, which is not
in excess of market. An analysis of inventories follows:
December 29, December 31,
2000 1999
----------- -----------
Raw Materials $ 5,569,000 $ 7,537,000
Work In Progress 551,000 749,000
Finished Goods 18,041,000 27,090,000
----------- -----------
$24,161,000 $35,376,000
=========== ===========
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Depreciation is
computed on the straight-line, accelerated cost recovery system or modified
accelerated cost recovery system methods over the estimated service lives of
depreciable assets (5-39 years for buildings and improvements, 3-10 years for
machinery and equipment, 5-10 years for office and computer equipment, and 7-10
years for leasehold improvements, which is the lesser of the lease term or the
asset's useful life). Cost of property, plant, and equipment is as follows:
December 29, December 31,
2000 1999
----------- -----------
Land $ 501,000 $ 501,000
Buildings and improvements 16,749,000 16,826,000
Machinery and equipment 10,757,000 10,719,000
Office and computer equipment 4,782,000 2,309,000
Leasehold improvements 1,842,000 2,337,000
Construction in progress 1,557,000 2,906,000
----------- -----------
$36,188,000 $35,598,000
=========== ===========
Maintenance and repairs are charged to expense as incurred; expenditures
for renewals and betterments are capitalized. When assets are retired or
otherwise disposed of, the property, plant, and equipment accounts are relieved
of cost and accumulated depreciation and any resulting gain or loss is credited
or charged to income.
INTANGIBLE ASSETS
The intangible assets recorded by the Company in connection with various
acquisitions primarily consist of goodwill which is being amortized on a
straight-line basis over 30 years. As of December 29, 2000 and December 31,
1999, accumulated amortization of intangibles amounted to $3,990,000 and
$3,555,000, respectively (see Notes 4 and 10).
LONG-LIVED ASSETS
The Company continually evaluates whether events and circumstances have
occurred that indicate that the remaining balance of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used in the operations of the Company may be impaired and not be recoverable. In
performing this evaluation, the Company uses an estimate of the related cash
flows expected to result from the use of the asset and its eventual disposition.
When this evaluation indicates the asset has been impaired, the Company will
measure such impairment based on the asset's fair value and the amount of such
impairment is charged to earnings (see Note 10).
COMPUTER SOFTWARE COSTS
The Company capitalizes external direct costs of materials and services;
payroll and payroll-related costs for employees directly associated with
developing or obtaining computer software. Capitalized costs of computer
software developed or obtained for internal use are amortized on a straight-line
basis.
20
22
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is established to provide for losses
inherent in the installment contracts receivable portfolio. The allowance for
credit losses is determined based on the Company's historical loss experience
after adjusting for current economic conditions. Management, after assessing the
loss experience and economic conditions, adjusts the allowance account through
periodic provisions. Actual credit losses are charged to the allowance when
realized.
An analysis of the allowance for losses on installment contracts receivable
is as follows:
December 29, December 31,
2000 1999
----------- -----------
Balance, beginning of year $ 357,000 $ 295,000
Provision for credit losses 1,719,000 524,000
Charge-offs (1,226,000) (462,000)
----------- -----------
Balance, end of year $ 850,000 $ 357,000
=========== ===========
VOLUME INCENTIVE PAYABLE
The Company provides rebates to dealers based upon a predetermined formula
applied to the volume of homes sold to the dealer during the year. Such rebates
(reflected as a reduction of gross revenues) are recorded at the time sales to
independent dealers are recognized.
PRODUCT WARRANTIES
The Company warrants its products against certain manufacturing defects for
a period of one year commencing at the time of retail sale. The estimated cost
of such warranties is accrued at the time of sale to the independent dealer
based on historical warranty costs incurred. Periodic adjustments to the accrual
will be made as events occur which indicate changes are necessary.
INSURANCE ARRANGEMENTS
The Company is partially self-insured for workers' compensation and health
insurance claims. The Company purchases insurance coverage for all workers'
compensation claims in excess of $300,000 per occurrence, and for all
health-care claims in excess of $75,000 per occurrence (with an annual aggregate
stop-loss limit of approximately $5,581,000 for all claims). Amounts are accrued
currently for the estimated costs of claims incurred, including related
expenses. Management considers accrued liabilities for unsettled claims to be
adequate; however, there is no assurance that the amounts accrued will not vary
from the ultimate amounts incurred upon final disposition of all outstanding
claims. As a result, periodic adjustments to the reserves will be made as events
occur which indicate changes are necessary.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Because of the short-term nature of a majority of the Company's financial
instruments and the low interest rate volatility associated with the installment
contracts receivable, the fair values of the Company's financial instruments at
December 29, 2000, and December 31, 1999, approximated book values at those
dates.
REVENUE RECOGNITION - MANUFACTURED HOUSING
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements. It summarizes the SEC's views in applying generally accepted
accounting principles to selected revenue recognition issues. An amendment was
issued in June 2000, which delayed the implementation until no later than the
fourth quarter of fiscal years beginning after December 15, 1999. Accordingly,
in the fourth quarter of 2000, to adopt the provisions of SAB No. 101, the
Company changed its method of revenue recognition of homes sold by its
manufacturing segment to a method based on delivery of the home to the dealer's
lot. Prior to the fourth quarter, the Company recognized sales to independent
dealers' upon completion of the home. Such adoption did not have a material
impact on the Company's reported results of operations, financial position, or
cash flows.
With respect to its retail operations, prior to the fourth quarter, the
Company recorded a retail home sale when the customer signed an installment
contract for the purchase of a manufactured home, and the Company received the
appropriate down payment. To adopt SAB No. 101, the Company will recognize
revenue on retail sales when: cash payment is received, or in the case of credit
sales, which represent the majority of retail sales, when a down payment is
received and the home buyer enters into an installment sales contract;
construction of the home is complete, and the home buyer has inspected and
accepted the home. Such adoption did not have a material impact on the Company's
reported results of operation, financial position, or cash flows.
21
23
REVENUE RECOGNITION - RETAIL FINANCING
Interest income from installment contract receivables is recognized using
the interest method. Accrual of interest income on installment contract
receivables is suspended when a loan is contractually delinquent for 90 days or
more. Interest accrual resumes when the loan becomes contractually current, and
past-due interest income is recognized at that time. Most of the installment
contract receivables are with borrowers in the southern portion of the United
States and are collateralized by manufactured homes.
STOCK-BASED COMPENSATION
The Company accounts for its stock options under the intrinsic value method
and, accordingly, no compensation cost is recognized for options granted where
the exercise price is equal to or greater than the market value of the Company's
common stock at the date of grant.
INSTALLMENT CONTRACTS
In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities, which
replaced SFAS No. 125. SFAS No. 140 revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures. This statement is effective for fiscal years
ending after December 15, 2000. The adoption of this statement did not have any
impact on the Company's reported results of operations, financial position or
cash flows.
3. EARNINGS PER SHARE
The following reconciliation details the numerators and denominators used
to calculate basic and diluted earnings per share for the respective periods:
2000 1999 1998
------------ ------------ ------------
Income (loss) before cumulative effect of
accounting change $(17,112,000) $ (1,593,000) $ 9,803,000
------------ ------------ ------------
Average shares outstanding:
Basic 12,132,990 12,176,705 13,440,607
Add dilutive effect of options issued -- -- 206,609
------------ ------------ ------------
Diluted 12,132,990 12,176,705 13,647,216
------------ ------------ ------------
Income (loss) before cumulative effect of
accounting change per share:
Basic $ (1.41) $ (.13) $ .73
Diluted $ (1.41) $ (.13) $ .72
At December 29, 2000 and December 31, 1999, 928,871 and 604,708 outstanding
options were excluded from the table above, as they were antidilutive.
4. BUSINESS COMBINATIONS AND INVESTMENTS IN JOINT VENTURES:
During 1998, the Company completed acquisitions that resulted in the
purchase of 15 retail sales centers. All acquisitions were accounted for under
the purchase method of accounting; thus, the consolidated financial statements
for fiscal 1998 reflect the operations of the businesses acquired from the dates
of acquisition. Aggregate consideration given for all acquisitions during 1998
consisted of approximately $7.2 million in cash, and liabilities assumed
amounted to $1.5 million. Total intangibles recorded consisted of $0.3 million
in non-compete agreements and $1.6 million in goodwill. The Company amortizes
goodwill over 30 years and agreements not to compete over the life of the
agreements, which are generally 4 to 10 years. The results of operations with
respect to these acquisitions were not significant and accordingly, no pro forma
results have been provided.
The Company owns 39% of a manufacturing joint venture, which produces
rafters used in the production of the Company's homes. The Company's share of
income from the joint venture amounted to $88,000, $686,000 and $469,000 in
2000, 1999, and 1998, respectively. In 2000 and 1999, the joint venture
distributed $260,000 and $240,000, respectively, in cash to the Company.
The Company has a 50% ownership interest in Wenco 21. The Company's share
of income from Wenco 21 amounted to $78,000, $214,000 and $210,000 in 2000,
1999, and 1998, respectively.
The Company also has a 33% interest in a manufacturing joint venture with
other manufactured home builders. The joint venture manufactures cabinet doors
for sale to participants in the joint venture as well as third party customers.
The Company's share of income from this joint venture amounted to $64,000,
$417,000, and $442,000 in 2000, 1999, and 1998, respectively. In 1999, the
22
24
joint venture distributed $400,000 in cash to the Company.
The Company also has a 25% interest in a manufacturing joint venture with
other manufactured home builders. The joint venture manufactures rafters. The
Company's share of loss from this joint venture amounted to $478,000, $0, and $0
in 2000, 1999, and 1998, respectively. The Company also contributed an
additional $445,000, $88,000, and $78,000 to this joint venture during 2000,
1999, and 1998, respectively.
The Company owns 25% of a manufacturing joint venture that laminates
wallboard. The Company share of the loss of this joint venture was $45,000, $0
and $0 in 2000, 1999, and 1998, respectively. The Company received distributions
from this joint venture of $182,000 in 2000.
5. INCOME TAXES:
The provision (benefit) for income taxes for the respective periods ended
was as follows:
December 29, December 31, January 1,
2000 1999 1999
----------- ----------- -----------
Federal:
Current $(3,738,000) $ 1,196,000 $ 5,272,000
Deferred (393,000) (2,085,000) 192,000
----------- ----------- -----------
(4,131,000) (889,000) 5,464,000
----------- ----------- -----------
State:
Current (550,000) 176,000 602,000
Deferred (57,000) (307,000) 23,000
----------- ----------- -----------
(607,000) (131,000) 625,000
----------- ----------- -----------
Valuation Allowance 4,412,000 -- --
----------- ----------- -----------
$ (326,000) $(1,020,000) $ 6,089,000
=========== =========== ===========
The provision (benefit) for income taxes differed from the amounts computed
by applying the federal statutory rate of 34% in fiscal year 2000, 34% in 1999
and 35% in fiscal year 1998 due to the following:
December 29, December 31, January 1,
2000 1999 1999
----------- ----------- -----------
Tax provision (benefit) at the federal statutory rate $(5,929,000) $ (888,000) $ 5,562,000
Change in valuation allowance 4,412,000 -- --
State income taxes (benefit), net of federal benefit (401,000) (86,000) 406,000
Goodwill amortization and impairment charges 1,157,000 117,000 168,000
Other 435,000 (163,000) (47,000)
----------- ----------- -----------
$ (326,000) $(1,020,000) $ 6,089,000
=========== =========== ===========
23
25
Temporary differences which created net deferred tax benefits at December 29,
2000 and December 31, 1999 are as follows:
December 29, December 31,
2000 1999
----------- -----------
Deferred tax benefits:
Warranty accrual $ 960,000 $ 1,273,000
Accrued exit costs 182,000 1,103,000
Workers' compensation accrual 605,000 699,000
Accrued expenses 796,000 686,000
Organization and pre-operating costs 373,000 375,000
State operating loss carry forwards 2,018,000 450,000
Goodwill Amortization 269,000 36,000
Other 158,000 270,000
----------- -----------
5,361,000 4,892,000
----------- -----------
Deferred tax liabilities:
Depreciation 327,000 266,000
Non-compete amortization 103,000 150,000
Other 170,000 165,000
----------- -----------
600,000 581,000
----------- -----------
4,761,000 4,311,000
Valuation allowance 4,412,000 --
----------- -----------
$ 349,000 $ 4,311,000
=========== ===========
During fiscal 2000, the Company recorded a valuation allowance of $4.4
million related to deferred income tax assets in accordance with the provisions
of SFAS No. 109. Because the Company has operated at a loss in its two most
recent fiscal years and because management believes difficult competitive
conditions will continue for the foreseeable future, management believes that
under the provisions of SFAS No. 109, it is no longer appropriate to record
income tax benefits on current losses in excess of anticipated refunds of taxes
previously paid. The Company has established valuation allowances against the
tax benefits of substantially all its net operating loss carry forwards and
deductible temporary differences between financial and taxable income.
6. NOTES PAYABLE AND LONG-TERM DEBT:
The Company routinely finances inventory of homes held by its retail
centers through floor-plan notes payable with various financial institutions.
The notes normally require periodic payments of principal and interest, and full
payments when the home is sold to a customer. The weighted average interest
rates on these borrowings during 2000 and 1999 were 10.0% and 8.0%,
respectively. These notes payable at December 29, 2000 and December 31, 1999
amounted to $8,049,000 and $4,182,000, respectively.
During fiscal 2000, the Company financed a portion of its retail inventory
with a $28.5 million secured bank line of credit which is renewable May 31, 2001
and bears interest at the London Interbank Offered Rate ("LIBOR") plus 1.5%
(8.1% at December 29, 2000). The Company's ability to draw upon this line of
credit is dependent upon meeting certain financial ratios and covenants. The
Company had outstanding borrowings of $20,000,000 and $25,000,000 on this line
at December 29, 2000 and December 31, 1999, respectively.
On March 9, 2001, the Company renewed its bank line of credit. As part of
the renewal, the maximum line of credit amount was increased to $40 million. The
renewed line of credit is secured by substantially all of the Company's assets,
matures on March 8, 2004 and bears interest at the prime rate plus 1%. At March
9, 2001 the Company's availability on the line of credit was $13,803,000. The
Company's ability to draw upon this line of credit is dependent upon meeting
certain financial ratios and covenants.
24
26
All of the Company's long-term debt was repaid during fiscal 2000. The
Company's long-term debt at December 31, 1999 was as follows:
December 31,
1999
-----------
Working capital loan payable, repaid in 2000 $ 2,417,000
Construction term loan payable, repaid in 2000 1,148,000
-----------
Total long-term debt 3,565,000
Less amounts due within one year 1,101,000
-----------
$ 2,464,000
===========
7. COMMITMENTS AND CONTINGENCIES:
REPURCHASE AGREEMENTS
Substantially all of the Company's independent dealers finance their
purchases through "floor plan" arrangements under which a financial institution
provides the dealer with a loan for the purchase price of the home and maintains
a security interest in the home as collateral. In connection with a floor plan
arrangement, the financial institution which provides the independent dealer
financing customarily requires the Company to enter into a separate repurchase
agreement with the financial institution, under which the Company is obligated,
upon default by the independent dealer, to repurchase the homes at the Company's
original invoice price plus certain administrative and shipping expenses.
Repurchases were $8.7 million, $4.9 million, and $1.4 million for the years
ended 2000, 1999, and 1998 respectively. At December 29, 2000, the Company's
contingent repurchase liability under floor plan financing arrangements through
independent dealers was approximately $61 million. While homes that have been
repurchased by the Company under floor-plan financing arrangements are usually
sold to other dealers, no assurance can be given that the Company will be able
to sell to other dealers homes which it may be obligated to repurchase in the
future under such floor-plan financing arrangements or that the Company will not
suffer losses with respect to, and as a consequence of, those arrangements.
INTEREST REIMBURSEMENT
The Company has agreements with certain dealers to reimburse them for their
interest costs incurred in connection with floor-plan financing. Interest
expense related to these agreements is classified as a selling expense in the
accompanying consolidated statements of operations. For the years ended December
29, 2000, December 31, 1999, and January 1, 1999, interest expense related to
these agreements amounted to $1,238,000, $979,000, and $742,000, respectively.
OPERATING LEASES
The Company leases certain manufacturing facilities and retail sales
centers under operating leases. Rent expense under all leases was $1.5 million
for the year ended December 29, 2000, $1.6 million for the year ended December
31, 1999, and $1.8 million for the year ended January 1, 1999. Future minimum
lease payments for each of the next five years at December 29, 2000, are $1.1
million, $.6 million, $0.3 million, $0.2 million, and $0.1 million.
LITIGATION
The Company is a party to various legal proceedings incidental to its
business. The majority of these legal proceedings are claims related to that
warranty on manufactured homes, or employment issues such as workers'
compensation claims. Management believes that adequate reserves are maintained
for such claims. In the opinion of management, after consultation with legal
counsel, the ultimate liability, if any, with respect to these proceedings will
not materially affect the financial position or results of operations of the
Company; however, the ultimate resolution of these matters, which could occur
within one year, could result in losses in excess of the amounts reserved.
8. RETIREMENT OF TREASURY STOCK:
Effective December 31, 1999, the Company retired the 3,505,900 shares of
its common stock that were held in treasury. The excess of the aggregate
purchase price of the treasury stock over par value was deducted from capital in
excess of par. The treasury stock retirement did not result in any change to
total stockholders' equity.
9. EMPLOYEE BENEFIT PLANS:
The Company maintains a stock option plan which authorizes a total of
1,500,000 shares of Company common stock for issuance to key employees and
advisors. The Company granted options to acquire 330,250, 96,330, and 166,100
shares of common stock in 2000, 1999, and 1998, respectively. Due to the decline
in the Company's stock price, and the need to retain and motivate key employees,
on December 14, 1998, the Board of Directors approved the repricing of certain
options outstanding previously granted to employees of the Company. The Company
repriced 561,464 shares at prices ranging from $6.93 to $10.13 with an aggregate
exercise price of approximately $4.3 million to an exercise price of $5.50 per
share, the fair market value on the date of repricing. The repriced options are
included in the table below as new grants in fiscal 1998 with the old options
being included as forfeitures.
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At December 29, 2000, options under the plan described above to purchase
717,894 shares were exercisable. Total options outstanding under the plan
described above were 857,621 at December 29, 2000 with a weighted average
remaining contractual life of 7.63 years and a weighted average exercise price
of $3.55 and a range of exercise prices from $1.06 to $5.50.
The Company also maintains a stock option plan, which authorizes a total of
75,000 shares of Company common stock for issuance to the Company's outside
directors. In 2000, 1999, and 1998, the Company granted options to acquire
22,500, 11,250 and 11,250, respectively, shares of common stock each year to
certain outside directors. The exercise prices of the options approximated the
fair market value of the Company's common stock at the date of grant. At
December 29, 2000, options to purchase 71,250 shares were exercisable. Total
options outstanding were 71,250 at December 29, 2000 with a weighted average
remaining contractual life of 7.94 years, weighted average exercise price of
$6.74 and a range of exercise prices from $1.06 to $11.63.
The Company accounts for these plans under Accounting Principles Bulletin
("APB") Opinion No. 25, under which no compensation cost is recognized for
options that are issued with exercise prices that approximate the fair market
value of the Company's common stock on the date of grant. Had compensation
expense for the Company's stock option plans for awards in 2000, 1999, and 1998
been determined under SFAS No. 123, Accounting for Stock-Based Compensation,
based on the fair market value of the options at the grant date, the Company's
net income and income per share would have been reduced to the pro forma amounts
indicated below:
2000 1999 1998
------------- ------------- ----------
Net income (loss) - as reported $ (17,112,000) $ (1,593,000) $9,296,000
Net income (loss) -pro forma $ (17,437,000) $ (1,707,000) $8,656,000
As reported - net income (loss) per share:
Basic $ (1.41) $ (0.13) $ 0.69
Diluted $ (1.41) $ (0.13) $ 0.68
Pro forma- net income (loss) per share:
Basic $ (1.44) $ (0.14) $ 0.64
Diluted $ (1.44) $ (0.14) $ 0.63
Weighted Weighted Weighted
Average Average Average
December 31, Exercise December 31, Exercise January 1, Exercise
2000 Price 1999 Price 1999 Price
------------------------- ------------------------- -----------------------
Outstanding at beginning of year 604,708 $ 5.19 598,964 $ 5.83 516,714 $ 7.75
Granted 352,750 1.06 107,580 2.66 738,814 6.59
Exercised -- -- -- -- (65,464) 6.99
Forfeited (28,587) 4.08 (101,836) 6.26 (591,100) 7.78
------------------------- ------------------------- -----------------------
Outstanding at end of year 928,871 $ 5.10 604,708 $ 5.19 598,964 $ 5.83
========================= ========================= =======================
Exercisable at end of year 789,144 $ 3.84 525,328 $ 5.45 521,280 $ 5.88
------------------------- ------------------------- -----------------------
Weighted average fair value of
options granted $ 0.75 $ 1.63 $ 2.40
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The following table summarizes the changes in the number of shares under
option pursuant to the plans described above:
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 2000, 1999 and 1998:
2000 1999 1998
--------- ---------- ---------
Dividend yield 0.00% 0.00% 0.00%
Expected volatility .50 0.67 0.40
Risk-free interest rate 6.47% 6.08% 5.05%
Expected life (years) 10.00 5.00 5.00
Of the options granted in 2000, 247,500 options are exercisable immediately
and the remainder become exercisable equally over two years. Vesting of the 1999
grants is 56,250 options vesting immediately and the remainder vesting equally
over two years. Vesting of the 1998 repriced options and the 11,250 options
under the Directors plan grant is 500,606 options vesting immediately, 49,075
vesting equally over 3 years, and the remainder vesting equally over 2 years.
The Company maintains employment agreements with certain employees which
renew automatically for additional one-year periods unless terminated by either
of the parties. The agreements provide for minimum base salaries and incentive
compensation (as defined therein). In addition, the agreements provide for
payment of up to six months' salary and/or bonus upon certain circumstances (for
example, termination without cause or upon death).
The Company offers a 401(k) retirement plan to employees having completed
one year of service, whereby eligible employees may contribute up to 20% of
their annual compensation subject to limitations by the Internal Revenue
Service. The Company may match up to 100% of the employee contributions as
limited by the Internal Revenue Service. For the years ended December 29, 2000,
December 31, 1999, and January 1, 1999, the Company expensed $98,000, $101,000,
and $86,000, respectively, related to the plan.
10. IMPAIRMENT AND OTHER CHARGES:
During 2000, the Company decided to close eleven of its 28 retail centers.
The decision was based primarily on losses incurred at these centers over the
last several months. Three retail centers were closed in each of the first three
quarters of fiscal 2000 and two retail centers were closed in the fourth quarter
of fiscal 2000. In connection with the decision to close these retail centers,
the Company recorded a pre-tax charge of $4.4 million during the second quarter
consisting of the impairment of the intangible assets of $3.8 million and exit
costs of $0.6 million associated with rental commitments and leasehold
improvements on retail centers which the Company has committed to close. During
the fourth quarter of 2000, the Company recorded an additional pre-tax charge of
$1.6 million associated with the impairment of intangible assets and exit costs
related to certain of its retail centers. Although these amounts represent
management's best estimate of total costs to close these centers, the actual
cost could ultimately differ from these amounts. The Company has recorded these
amounts as an impairment charge in the accompanying statement of operations for
the fiscal year ended December 29, 2000. During the fiscal year ended December
29, 2000 and December 31, 1999, these eleven centers generated 6.0% and 7.3%,
respectively, of the total revenues of the Company. The impact of these centers
on the operating income of the Company, excluding the impairment charges, was a
pre-tax loss of $3.1 million and a pre-tax loss of $2.1 million during the
fiscal year ended December 29, 2000 and December 31, 1999, respectively. The
Company continues to evaluate its unprofitable retail centers and future retail
center closings could happen which would result in further impairment charges.
During 1999, the Company recorded a pre-tax charge of $6.4 million
associated with the closing of its manufacturing facility in North Carolina.
During fiscal years ended January 1, 1999 and January 2, 1998 this facility
generated 6.1% and 5.9%, respectively, of the total revenues of the Company.
During 1999, the Company also recorded a pre-tax charge of $686,000 associated
with the closing of three retail centers, one in Kentucky and two in South
Carolina. Revenues generated by these three retail centers were less than 1% of
total revenues of the Company for the fiscal years ended January 1, 1999 and
January 2, 1998.
11. SEGMENT AND RELATED INFORMATION:
The Company has four reportable segments: manufacturing, retail operations,
component supply and consumer financing. The manufacturing segment produces
manufactured homes for sale to independent and company-owned retail centers. The
retail operations segment sells homes to retail customers which have been
produced by various manufacturers including the Company's manufacturing segment.
The component supply segment sells various supply products to the Company's
manufacturing segment and to third party customers. The consumer financing
segment originated and serviced consumer loans primarily for homes manufactured
by the Company through February 1997. Wenco Finance has now restricted its loan
origination activities and engaged 21st Century to service its existing loan
portfolio. Wenco 21, the Company's joint venture with 21st Century, continues to
offer consumer financing for homes manufactured by the Company, as well as for
other homes sold through its retail centers and independent dealers.
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The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on total (external and intersegment) revenues, gross profit,
and segment operating income. The Company accounts for intersegment sales and
transfers as if the sales or transfers were to third parties, at current market
prices. The Company does not allocate income taxes to all segments. In addition,
not all segments have significant noncash items other than depreciation and
amortization in reported segment operating profit or loss.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different operating and marketing strategies.
The following table presents information about segment profit or loss
(dollars in thousands):
2000 1999 1998
--------- --------- ---------
Revenues:
Manufacturing $ 151,963 $ 215,721 $ 257,334
Retail Operations 49,565 63,996 76,539
Component Supply 30,097 46,892 57,266
Consumer Financing 1,138 1,266 1,145
Other Operating Segments 8,091 9,655 11,163
Eliminations (55,466) (73,632) (83,852)
--------- --------- ---------
Total Revenues $ 185,388 $ 263,898 $ 319,595
========= ========= =========
Gross Profit:
Manufacturing $ 21,113 $ 30,682 $ 42,530
Retail Operations 11,822 18,127 22,012
Component Supply 2,376 3,858 5,075
Consumer Financing 230 441 325
Other Operating Segments 5,713 7,607 9,026
Eliminations (6,957) (8,646) (11,043)
--------- --------- ---------
Gross Profit 34,297 52,069 67,925
Segment operating income (loss):
Manufacturing 2,253 (34) 14,848
Retail Operations (16,048) (4,818) (1,603)
Component Supply 1,064 2,297 3,276
Consumer Financing (1,298) 37 175
Corporate (3,894) (888) (618)
Other operating Segments 485 793 (186)
--------- --------- ---------
Segment Operating income (loss) (17,438) (2,613) 15,892
Income / expenses not allocated to segments:
Benefit (provision) for income taxes 326 1,020 (6,089)
Cumulative effect of accounting change -- -- (507)
--------- --------- ---------
Net income (loss) $ (17,112) $ (1,593) $ 9,296
========= ========= =========
Revenue from segments below the quantitative thresholds are attributable to two
other operating segments of the Company which include a trucking business and a
small insurance business. These segments have never met the quantitative
thresholds for determining reportable segments. The Corporate segment does not
generate any revenues, but does incur certain administrative expenses.
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A summary of identifiable assets, depreciation and amortization, and capital
additions for the years ended 2000, 1999, and 1998, is as follows:
Identifiable Depreciation and Capital
Assets Amortization Additions
--------------- --------------- ---------------
2000:
Manufacturing $ 23,624,000 $ 1,141,000 $ 244,000
Retail Operations 29,261,000 616,000 677,000
Component Supply 4,147,000 246,000 109,000
Consumer Financing 12,596,000 -- --
Corporate 27,906,000 976,000 773,000
Other Operating Segments 336,000 8,000 --
Eliminations (2,683,000) -- --
--------------- --------------- ---------------
Consolidated $ 95,187,000 $ 2,987,000 $ 1,803,000
=============== =============== ===============
1999:
Manufacturing $ 27,699,000 $ 1,522,000 $ 679,000
Retail Operations 44,686,000 763,000 812,000
Component Supply 5,939,000 248,000 95,000
Consumer Financing 14,225,000 -- --
Corporate 33,385,000 874,000 1,669,000
Other Operating Segments 1,091,000 7,000 --
Eliminations (5,011,000) -- --
--------------- --------------- ---------------
Consolidated $ 122,014,000 $ 3,414,000 $ 3,255,000
=============== =============== ===============
1998:
Manufacturing $ 35,830,000 $ 2,164,000 $ 941,000
Retail Operations 43,993,000 278,000 1,448,000
Component Supply 6,808,000 225,000 103,000
Consumer Financing 13,353,000 -- --
Corporate 26,886,000 544,000 749,000
Other Operating Segments 798,000 43,000 --
Eliminations (6,012,000) -- --
--------------- --------------- ---------------
Consolidated $ 121,656,000 $ 3,254,000 $ 3,241,000
=============== =============== ===============
12. RELATED PARTY TRANSACTIONS:
The Company had sales to a development company affiliated with certain
stockholders who were also executive officers of the Company during the years
ended December 29, 2000, December 31, 1999, and January 1, 1999, which amounted
to $44,000, $203,000, and $3,000, respectively. In management's opinion,
transactions with the development company have been at prices and on terms no
less favorable to the Company than with third parties.
13. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING:
Effective January 3, 1998, the Company adopted Statement of Position
("SOP") No. 98-5, Reporting on the Costs of Start-up Activities and Organization
Costs. Costs of start-up activities and organization costs during the year ended
December 29, 2000 and December 31, 1999 have been expensed as incurred under the
SOP. Adoption of this statement resulted in a charge in 1998 of $825,000
($507,000 after tax), which is reflected as the cumulative effect of a change in
accounting principle.
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14. SUMMARY OF UNAUDITED QUARTERLY FINANCIAL DATA:
Unaudited quarterly financial information is as follows:
Quarter Ended Year Ended
------------------------------------------------------------------- -------------
March 31, June 30, September 29, December 29, December 29,
2000 2000 2000 2000 2000
------------- ------------- ------------- ------------- -------------
Net Revenues $ 48,278,000 $ 54,192,000 $ 46,517,000 $ 36,401,000 $ 185,388,000
Gross Profit 9,252,000 10,964,000 10,074,000 4,007,000 34,297,000
Income taxes (benefit) (210,000) (1,240,000) (395,000) 1,519,000 (326,000)
Net (Loss) (898,000) (3,396,000) (1,406,000) (11,412,000) (17,112,000)
Income (loss) per share:
Basic & Diluted $ (0.07) $ (0.28) $ (0.12) $ (0.94) $ (1.41)
Weighted average number of
common shares:
Basic & Diluted 12,132,990 12,132,990 12,132,990 12,132,990 12,132,990
Quarter Ended Year Ended
----------------------------------------------------------------- -------------
April 2, July 2, October 1, December 31, December 31,
1999 1999 1999 1999 1999
------------- ------------- ------------- ------------- -------------
Net Revenues $ 76,843,000 $ 72,930,000 $ 66,296,000 $ 47,829,000 $ 263,898,000
Gross Profit 16,126,000 14,943,000 12,696,000 8,304,000 52,069,000
Income taxes (benefit) 1,230,000 1,032,000 (1,900,000) (1,382,000) (1,020,000)
Net (Loss) 2,060,000 1,649,000 (3,067,000) (2,235,000) (1,593,000)
Income (loss) per share:
Basic & Diluted $ 0.17 $ 0.14 $ (0.25) $ (0.19) $ (0.13)
Weighted average number of
common shares:
Basic & Diluted 12,307,852 12,132,990 12,132,990 12,132,990 12,176,705
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Report of Independent Public Accountants
Southern Energy Homes, Inc. and subsidiaries
To Southern Energy Homes, Inc.:
We have audited the accompanying consolidated balance sheets of Southern
Energy Homes, Inc. (a Delaware Corporation) and subsidiaries as of December 29,
2000 and December 31, 1999 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three fiscal
years in the period ended December 29, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Southern Energy Homes, Inc.
and subsidiaries as of December 29, 2000, and December 31, 1999, and the results
of their operations and their cash flows for each of the three fiscal years in
the period ended December 29, 2000, in conformity with accounting principles
generally accepted in the United States.
As explained in Note 13 to the financial statements, effective January 3,
1998, the Company changed its method of accounting for the costs of start-up
activities and organization costs.
ARTHUR ANDERSEN LLP
Birmingham, Alabama
February 9, 2001 (except with respect,
to the matters discussed in Note 6
as to which the date is March 9, 2001)
Statement of Management's Responsibility
Southern Energy Homes, Inc. and subsidiaries
The consolidated financial statements and related information herein were
prepared by the Company and were based on accounting principles generally
accepted in the United States, appropriate in the circumstances to reflect in
all material respects the consolidated financial position of the Company as of
December 29, 2000 and December 31, 1999, and the consolidated results of
operations and cash flows for each of the years ended December 29, 2000 and
December 31, 1999, and January 1, 1999. The financial information presented
elsewhere in this report has been prepared in a manner consistent with the
financial statement disclosures.
Management is responsible for the reliability and integrity of these
statements. In meeting this responsibility, management maintains an accounting
system and related internal controls to provide reasonable assurance that the
financial records are reliable for preparing financial statements and
maintaining accountability for assets. The Company's systems and controls are
also designed to provide reasonable assurance that assets are safeguarded and
those transactions are executed in accordance with management's authorizations
and recorded properly.
The Board of Directors has appointed an Audit Committee that meets
periodically with management and the independent public accountants.
Arthur Andersen LLP has audited the consolidated financial statements in
accordance with auditing standards generally accepted in the United States and
their report appears herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information concerning the Company's directors and executive officers
required by this Item is incorporated by reference to the text appearing under
Part I, Item 1 -- Business under the caption "Executive Officers". Information
regarding compliance with Section 16(a) of the securities Exchange Act of 1934
is incorporated by reference from the Company's Definitive Proxy Statement for
the Annual Meeting of Stockholders to be held May 22, 2001.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference from the
Company's Definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on May 22, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is incorporated by reference from the
Company's Definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on May 22, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is incorporated by reference from the
Company's Definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on May 22, 2001.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K
(a) The following documents are filed as part of this report:
(1) Financial Statements
Consolidated Balance Sheets as of December 29, 2000 and December 31, 1999.
Consolidated Statements of Operations for each of the three fiscal years in
the period ended December 29, 2000.
Consolidated Statements of Stockholders' Equity for each of the three
fiscal years in the period ended December 29, 2000.
Consolidated Statements of Cash Flows for each of the three fiscal years in
the period ended December 29, 2000.
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Statement of Management's Responsibility
(2) Financial Statement Schedules
No financial statement schedules are included since the information is not
applicable, not required, or is included in the financial statements or
notes thereto.
(3) Listing of Exhibits
The following exhibits are hereby incorporated by reference:
2.1 Asset Purchase Agreement, dated as of July 31, 1994, by and among
the Registrant, Imperial Manufactured Homes of N.C., Inc.
("Imperial") and the stockholders of Imperial. (Filed as Exhibit
2.1 to the Current Report on Form 8-K dated August 14, 1994, File
No. 0-21204.)
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34
2.2 Real Estate Purchase Agreement, dated as of July 31, 1994,
between Imperial N.C. Associates and Lawyer's Title of North
Carolina, Inc. and Assignment of such Agreement to Southern
Energy Homes of North Carolina, Inc. (Filed as Exhibit 2.2 to the
Current Report on Form 8-K dated August 14, 1994, File No.
0-21204.)
2.3 Asset Purchase Agreement, dated April, 1998, by and between the
Registrant, Rainbow Homes, Inc., and the sole stockholder of
Rainbow Homes, Inc. (filed as Exhibit 2.3 to the Company's Annual
report on Form 10K for the year ended January 1, 1999.)
3.1 Certificate of Incorporation of the Company. (Filed as Exhibit
3.1 to the Registration Statement on Form S-1, Registration No.
33-57420.)
3.2 By-Laws of the Company. (Filed as Exhibit 3.2 to the Registration
Statement on Form S-1, Registration No. 33-57420.)
4.1 Specimen of Stock Certificate. (Filed as Exhibit 4.1 to the
Registration Statement on Form S-1, Registration No. 33-57420.)
4.7 Southern Development Council, Inc. Promissory Note. (Filed as
Exhibit 4.10 to the Registration Statement on form S-1,
Registration No. 33-57420.)
4.8 Stockholders' Agreement, dated as of June 8, 1989. (Filed as
Exhibit 4.12 to the Registration Statement on Form S-1,
Registration No. 33-57420.)
4.9 Form of First Amendment to Stockholders' Agreement, dated as of
January 13, 1993. (Filed as Exhibit 4.13 to the Registration
Statement on Form S-1, Registration No. 33-57420.)
*10.1 Employment Agreement with Wendell L. Batchelor, dated as of June
8, 1989. (Filed as Exhibit 10.1 to the Registration Statement on
Form S-1, Registration No. 33-57420.)
*10.2 Employment Agreement with Keith Brown, dated June 8, 1989.
(Filed as Exhibit 10.2 to the Registration Statement on Form S-1,
Registration No. 33-57420.)
*10.3 Employment Agreement with Johnny R. Long, dated June 8, 1989.
(Filed as Exhibit 10.3 to the Registration Statement on Form S-1,
Registration No. 33-57420.)
*10.4 Southern Energy Homes, Inc. 1993 Stock Option Plan. (Filed as
Exhibit 10.4 to the Registration Statement on Form S-1,
Registration No. 33-57420.)
*10.5 Form of Southern Energy Homes, Inc. 401(k) Retirement Plan.
(Filed as Exhibit 10.5 to the Registration Statement on Form S-1,
Registration No. 33-57420.)
*10.6 Management Agreement, effective as of June 8, 1989, by and
between Lee Capital Holdings and Southern Energy Homes, Inc.
(Filed as Exhibit 10.14 to the Registration Statement on Form
S-1, Registration No. 33-57420.)
10.7 Southern Development Council, Inc. Loan Commitment Agreement.
(Filed as Exhibit 10.15 to the Registration Statement on Form
S-1, Registration No. 33-57420.)
10.8 Lease Agreement by and between Hillard Brannon and Southern
Energy Homes, Inc., dated July 30, 1992. (Filed as Exhibit 10.16
to the Registration Statement on Form S-1, Registration No.
33-57420.)
10.9 Lease Agreement by and between Hillard Brannon and Southern
Energy Homes, Inc., dated November 16, 1989. (Filed as Exhibit
10.17 to the Registration Statement on Form S-1, Registration No.
33-57420.)
10.10 Lease Agreement by and between Robert Lowell Burdick, Nina
Burdick Vono, Carolyn Burdick Hunsaker, Jean Burdick Hall,
Mildred Burdick Marmont and Lane Burdick Adams, as Landlord, and
Southern Energy Homes, Inc. dated as of November 20, 1985, as
amended. (Filed as Exhibit 10.23 to the Registration Statement on
Form S-1, Registration No. 33-57420.)
10.11 Agreement and Plan of Merger of Southern Energy Homes, Inc., a
Delaware corporation, and Southern Energy Homes, Inc., an Alabama
corporation, dated as of January 15, 1993. (Filed as Exhibit
10.25 to the Registration Statement on Form S-1, Registration No.
33-57420.)
10.12 Certificate of Merger Merging Southern Energy Homes, Inc., an
Alabama corporation, with and into Southern Energy Homes, Inc., a
Delaware corporation, dated as of January 19, 1993. (Filed as
Exhibit 10.26 to the Registration Statement on Form S-1,
Registration No. 33-57420.)
10.13 Assignment of Lease and Rights dated June 29, 1993 between
B.B.H.L.P. Partnership and Southern energy Homes, Inc. (Filed as
Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter
ended July 2, 1993, File No. 0-21204.)
10.14 Lease Agreement dated as of June 1, 1984 between The Industrial
Development Board of the Town of Addison, Alabama and B.B.H.L.P.
Partnership. (Filed as Exhibit 10.2 to the Quarterly Report on
form 10-Q for the quarter ended July 2, 1993, File No. 0-21204.)
10.15 Assignment of Lease and Rights dated June 19, 1993 between
B.B.H.L.P. and Southern Energy Homes, Inc. (Filed as Exhibit 10.3
to the Quarterly Report on Form 10-Q for the quarter ended July
2, 1993, File No. 2-21204.)
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10.16 Lease Agreement dated as of December 1, 1986 between The
Industrial Development Board of the Town of Addison, Alabama and
B.B.H.L.P. Partnership. (Filed as Exhibit 10.4 to the Quarterly
Report on Form 10-Q for the quarter ended July 2, 1993, File No.
0-21204.)
10.17 Letter Agreement dated May 18, 1993 and Master Note dated May
19, 1993 between the Company and AmSouth Bank, N.A. (Filed as
Exhibit 10.27 to the Registration Statement on Form S-1,
Registration No. 33-68954.)
10.18 Deed of Real Estate dated August 5, 1993 relating to the
Company's Plant No. 2 in Addison, Alabama. (Filed as Exhibit
10.27 to the Registration Statement on Form S-1, Registration No.
33-68954.)
10.19 Deed of Real Estate dated July 30, 1993 relating to the
Company's manufacturing facility in Fort Worth, Texas. (Filed as
Exhibit 10.27 to the Registration Statement on Form S-1,
Registration No. 33-68954.)
*10.20 Southern Energy Homes, Inc. 1996 Option Plan for Non-employee
Directors. (Filed as Exhibit 10.20 to the Company's Annual Report
of Form 10-K for the year ended December 29, 1995).
10.21 Agreement and Plan of Reorganization of Southern Energy Homes,
Inc., a Delaware Corporation, and SE Management, Inc., an Alabama
Corporation, dated November 22, 1996 (filed as Exhibit 10.21 to
the Company's Annual Report on Form 10K for the year ended
January 3, 1997).
*10.22 Amended and Restated Employment Agreement with Wendell L.
Batchelor, dated as of June 14, 1996 (filed as Exhibit 10.22 to
the Company's Annual Report on Form 10K for the year ended
January 3, 1997).
*10.23 Amended and Restated Employment Agreement with Keith W. Brown,
dated as of June 14, 1996 (filed as Exhibit 10.23 to the
Company's Annual Report on Form 10K for the year ended January 3,
1997).
10.24 Asset Purchase Agreement, dated as of December 3, 1997, by and
among the Registrant, A&G, Inc. and the sole stockholder of A&G,
Inc. (filed as Exhibit 10.24 to the Company's Annual Report on
Form 10K for the year ended January 2, 1998).
The following Exhibits are filed herewith:
21 List of Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
* Management contract or compensatory plan or arrangement.
(b) The Company did not file a current report on form 8-K during the 4th
Quarter of fiscal 2000.
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36
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.
SOUTHERN ENERGY HOMES, INC.
Registrant
By: :/s/ Wendell L. Batchelor
------------------------------------
Wendell L. Batchelor
Chairman and Chief Executive Officer
Date: April 2, 2001
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/ Wendell L. Batchelor Chairman, April 1, 2001
- ------------------------------------ Chief Executive Officer
Wendell L. Batchelor and Director
/s/ Keith O. Holdbrooks President, April 2, 2001
- ------------------------------------ Chief Operating Officer
Keith O. Holdbrooks and Director
/s/ Keith W. Brown Executive Vice President, March 28, 2001
- ------------------------------------ Chief Financial Officer,
Keith W. Brown Treasurer, Secretary
and Director
/s/ James A. Hasty Corporate Controller April 2, 2001
- ------------------------------------
James A. Hasty
/s/ Johnny R. Long Director March 27, 2001
- ------------------------------------
Johnny R. Long
/s/ Louis C. Henderson Director March 27, 2001
- ------------------------------------
Louis C. Henderson, Jr
/s/ Clinton O. Holdbrooks Director March 27, 2001
- ------------------------------------
Clinton O. Holdbrooks
/s/ A.C. (Del) Marsh Director March 27, 2001
- ------------------------------------
A.C. (Del) Marsh
/s/ James A. Taylor Director March 29, 2001
- ------------------------------------
James A. Taylor
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EXHIBIT INDEX
2.1 Asset Purchase Agreement, dated as of July 31, 1994, by and among the
Registrant, Imperial Manufactured Homes of N.C., Inc. ("Imperial") and
the stockholders of Imperial. (Filed as Exhibit 2.1 to the Current
Report on Form 8-K dated August 14, 1994, File No. 0-21204.)
2.2 Real Estate Purchase Agreement, dated as of July 31, 1994, between
Imperial N.C. Associates and Lawyer's Title of North Carolina, Inc.
and Assignment of such Agreement to Southern Energy Homes of North
Carolina, Inc. (Filed as Exhibit 2.2 to the Current Report on Form 8-K
dated August 14, 1994, File No. 0-21204.)
2.3 Asset Purchase Agreement, dated April, 1998, by and between the
Registrant, Rainbow Homes, Inc., and the sole stockholder of Rainbow
Homes, Inc. (filed as Exhibit 2.3 to the Company's Annual report on
Form 10K for the year ended January 1, 1999.)
3.1 Certificate of Incorporation of the Company. (Filed as Exhibit 3.1 to
the Registration Statement on Form S-1, Registration No. 33-57420.)
3.2 By-Laws of the Company. (Filed as Exhibit 3.2 to the Registration
Statement on Form S-1, Registration No. 33-57420.)
4.1 Specimen of Stock Certificate. (Filed as Exhibit 4.1 to the
Registration Statement on Form S-1, Registration No. 33-57420.)
4.7 Southern Development Council, Inc. Promissory Note. (Filed as Exhibit
4.10 to the Registration Statement on form S-1, Registration No.
33-57420.)
4.8 Stockholders' Agreement, dated as of June 8, 1989. (Filed as Exhibit
4.12 to the Registration Statement on Form S-1, Registration No.
33-57420.)
4.9 Form of First Amendment to Stockholders' Agreement, dated as of
January 13, 1993. (Filed as Exhibit 4.13 to the Registration Statement
on Form S-1, Registration No. 33-57420.)
*10.1 Employment Agreement with Wendell L. Batchelor, dated as of June 8,
1989. (Filed as Exhibit 10.1 to the Registration Statement on Form
S-1, Registration No. 33-57420.)
*10.2 Employment Agreement with Keith Brown, dated June 8, 1989. (Filed as
Exhibit 10.2 to the Registration Statement on Form S-1, Registration
No. 33-57420.)
*10.3 Employment Agreement with Johnny R. Long, dated June 8, 1989. (Filed
as Exhibit 10.3 to the Registration Statement on Form S-1,
Registration No. 33-57420.)
*10.4 Southern Energy Homes, Inc. 1993 Stock Option Plan. (Filed as Exhibit
10.4 to the Registration Statement on Form S-1, Registration No.
33-57420.)
*10.5 Form of Southern Energy Homes, Inc. 401(k) Retirement Plan. (Filed as
Exhibit 10.5 to the Registration Statement on Form S-1, Registration
No. 33-57420.)
*10.6 Management Agreement, effective as of June 8, 1989, by and between
Lee Capital Holdings and Southern Energy Homes, Inc. (Filed as Exhibit
10.14 to the Registration Statement on Form S-1, Registration No.
33-57420.)
10.7 Southern Development Council, Inc. Loan Commitment Agreement. (Filed
as Exhibit 10.15 to the Registration Statement on Form S-1,
Registration No. 33-57420.)
10.8 Lease Agreement by and between Hillard Brannon and Southern Energy
Homes, Inc., dated July 30, 1992. (Filed as Exhibit 10.16 to the
Registration Statement on Form S-1, Registration No. 33-57420.)
10.9 Lease Agreement by and between Hillard Brannon and Southern Energy
Homes, Inc., dated November 16, 1989. (Filed as Exhibit 10.17 to the
Registration Statement on Form S-1, Registration No. 33-57420.)
10.10 Lease Agreement by and between Robert Lowell Burdick, Nina Burdick
Vono, Carolyn Burdick Hunsaker, Jean Burdick Hall, Mildred Burdick
Marmont and Lane Burdick Adams, as Landlord, and Southern Energy
Homes, Inc. dated as of November 20, 1985, as amended. (Filed as
Exhibit 10.23 to the Registration Statement on Form S-1, Registration
No. 33-57420.)
10.11 Agreement and Plan of Merger of Southern Energy Homes, Inc., a
Delaware corporation, and Southern Energy Homes, Inc., an Alabama
corporation, dated as of January 15, 1993. (Filed as Exhibit 10.25 to
the Registration Statement on Form S-1, Registration No. 33-57420.)
10.12 Certificate of Merger Merging Southern Energy Homes, Inc., an Alabama
corporation, with and into Southern Energy Homes, Inc., a Delaware
corporation, dated as of January 19, 1993. (Filed as Exhibit 10.26 to
the Registration Statement on Form S-1, Registration No. 33-57420.)
10.13 Assignment of Lease and Rights dated June 29, 1993 between B.B.H.L.P.
Partnership and Southern energy Homes, Inc. (Filed as Exhibit 10.1 to
the Quarterly Report on Form 10-Q for the quarter ended July 2, 1993,
File No. 0-21204.)
10.14 Lease Agreement dated as of June 1, 1984 between The Industrial
Development Board of the
36
38
Town of Addison, Alabama and B.B.H.L.P. Partnership. (Filed as Exhibit
10.2 to the Quarterly Report on form 10-Q for the quarter ended July
2, 1993, File No. 0-21204.)
10.15 Assignment of Lease and Rights dated June 19, 1993 between B.B.H.L.P.
and Southern Energy Homes, Inc. (Filed as Exhibit 10.3 to the
Quarterly Report on Form 10-Q for the quarter ended July 2, 1993, File
No. 2-21204.)
10.16 Lease Agreement dated as of December 1, 1986 between The Industrial
Development Board of the Town of Addison, Alabama and B.B.H.L.P.
Partnership. (Filed as Exhibit 10.4 to the Quarterly Report on Form
10-Q for the quarter ended July 2, 1993, File No. 0-21204.)
10.17 Letter Agreement dated May 18, 1993 and Master Note dated May 19,
1993 between the Company and AmSouth Bank, N.A. (Filed as Exhibit
10.27 to the Registration Statement on Form S-1, Registration No.
33-68954.)
10.18 Deed of Real Estate dated August 5, 1993 relating to the Company's
Plant No. 2 in Addison, Alabama. (Filed as Exhibit 10.27 to the
Registration Statement on Form S-1, Registration No. 33-68954.)
10.19 Deed of Real Estate dated July 30, 1993 relating to the Company's
manufacturing facility in Fort Worth, Texas. (Filed as Exhibit 10.27
to the Registration Statement on Form S-1, Registration No. 33-68954.)
*10.20 Southern Energy Homes, Inc. 1996 Option Plan for Non-employee
Directors. (Filed as Exhibit 10.20 to the Company's Annual Report of
Form 10-K for the year ended December 29, 1995).
10.21 Agreement and Plan of Reorganization of Southern Energy Homes, Inc.,
a Delaware Corporation, and SE Management, Inc., an Alabama
Corporation, dated November 22, 1996 (filed as Exhibit 10.21 to the
Company's Annual Report on Form 10K for the year ended January 3,
1997).
*10.22 Amended and Restated Employment Agreement with Wendell L. Batchelor,
dated as of June 14, 1996 (filed as Exhibit 10.22 to the Company's
Annual Report on Form 10K for the year ended January 3, 1997).
*10.23 Amended and Restated Employment Agreement with Keith W. Brown, dated
as of June 14, 1996 (filed as Exhibit 10.23 to the Company's Annual
Report on Form 10K for the year ended January 3, 1997).
10.24 Asset Purchase Agreement, dated as of December 3, 1997, by and among
the Registrant, A&G, Inc. and the sole stockholder of A&G, Inc. (filed
as Exhibit 10.24 to the Company's Annual Report on Form 10K for the
year ended January 2, 1998).
The following Exhibits are filed herewith:
21 List of Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
* Management contract or compensatory plan or arrangement.
37