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¬nancial institutions continue to service the Com-
Liquidity and Capital Resources
pany™s growth.
The Company, in April 1986, sold $18,000,000 of
1985 Versus 1984 9% convertible subordinated notes due May 15,
2001. The proceeds were used primarily to reduce
The Company™s net sales for 1985 were
¬‚oor plan notes payable and to signi¬cantly
$68,674,779 compared to $30,480,571 for 1984,
improve the Company™s liquidity. During 1986, the
an increase of 125%. The majority of this increase
Company purchased Jeff Brown Homes, Inc. with
was due to the addition of eight retail sales centers
nine sales centers and Piggy Bank Homes of Ala-
during the ¬rst quarter and the acquisition of Coun-
bama, Inc. with six sales centers, added 13 Com-
try Squire Mobile Homes, Inc. on March 22, 1985,
pany-owned sales centers, formed a ¬nance
with 20 retail sales centers. The Company also
company subsidiary with an initial capitalization of
opened seven retail sales centers in the second
$500,000, expanded the principal of¬ces of its
quarter, six in the third quarter, and two in the fourth
wholly-owned subsidiary, Tri-County Homes, Inc.,
quarter. Volume increases in sales centers which
and opened a second production line at its manu-
were in operation at the end of 1984 also occurred
facturing facility, using funds generated from the
while the average sales price per unit remained
sale of the subordinated notes and from operations.
fairly constant from 1984 to 1985. The Company™s
purchase of a manufacturing facility on September At December 31, 1986, the Company had avail-
4, 1985, contributed approximately 7% of the 1985 able $1,000,000 in a bank line of credit and
sales increase. $8,000,000 in unused ¬‚oor plan lines of credit.
On February 13, 1987, the Company sold
Finance participation income for 1985 was
$25,000,000 of unsecured senior notes due in
$9,715,558 compared to $5,221,279, an increase
1990 and 1992 bearing interest at a blended rate
of 86%. This was less than the percentage increase
of 8.95%. The proceeds have been partially used to
in sales due to three factors: (1) The election to dis-
reduce ¬‚oor plan notes payable.
count the unreceived portion of ¬nance participation
income to its present value; (2) Country Squire Although working capital increased signi¬cantly in
earned signi¬cantly less ¬nance participation 1986, operations used working capital of
income than the other retail groups, primarily $2,956,041 compared to providing working capital
because of non-recourse sales; and, (3) the inclu- of $2,847,026 in 1985 and $2,599,953 in 1984.
201
Liability and Equity Analysis




5-35 Part 2 Business Analysis and Valuation Tools




The use of working capital by operations in 1986
was principally due to the interest rate spread appli-
cable to ¬nance participation and signi¬cant reduc-
tions in deferred income taxes applicable to the
provision for credit losses and ¬nance participation
income.
The Tax Reform Act of 1986 will bene¬t the Com-
pany through a reduction of the corporate income
tax rate. However, beginning January 1, 1987, the
Manufactured Homes




Act will require the Company to accelerate the pay-
ment of Federal income taxes. However, the Com-
pany believes that funds to be generated by
operations, combined with credit lines currently
available, will be suf¬cient to satisfy capital needs
for current operations.
202 Liability and Equity Analysis




5-36
Liability and Equity Analysis




CONSOLIDATED BALANCE SHEET

December 31, 1986 1985

ASSETS
Current Assets
Cash and cash equivalents:
Cash and temporary investments $2,486,024 $2,968,837
Contract proceeds receivable from ¬nancial institutions (Note 9) 11,496,078 5,189,535




Manufactured Homes
Total cash and cash equivalents 13,982,102 8,158,372
Finance participation receivable “ current portion (Note 2) 2,691,497 2,486,001
Deferred ¬nance participation income (801,511) (523,038)
Net ¬nance participation receivable 1,889,986 1,962,963
Other receivables (Note 4) 3,746,863 2,057,674
Refundable income taxes (Note 11) 778,971 ”
Inventories (Notes 5 and 9) 38,163,712 25, 628,156
Prepaid expenses 538,419 408,124
Deferred income taxes (Note 11) 761,262 436,496
Total current assets 59,861,315 38,651,785
Finance participation receivable “ noncurrent portion
(Note 2) 16,128,799 10, 269,713
Deferred ¬nance participation income (3,923,178) (2,968,629)
Net ¬nance participation receivable 12,205,621 7,301,084
Property, plant and equipment at cost (Notes 6 and 10) 7,504,272 5,467,164
Accumulated depreciation and amortization (2,410,812) (1,555,427)
Net property, plant and equipment 5,093,460 3,911,737
Excess of costs over net assets of acquired companies less
amortization (Note 3) 2,107,874 973, 860
Other assets 2,109,533 106,458
$81,377,803 $50,944,924
203
Liability and Equity Analysis




5-37 Part 2 Business Analysis and Valuation Tools




December 31, 1986 1985

LIABILITIES AND STOCKHOLDERS™ EQUITY
Current Liabilities
Notes payable $1,099,971 $ ”
Long-term debt “ current installments (Note 10) 810,901 1,100,624
Floor plan notes payable (Note 9) 35,207,386 27,468,153
Accounts payable 4,899,250 2,210,560
Income taxes (Note 11) ” 1,828,234
Manufactured Homes




Accrued expenses and other liabilities (Note 8) 2,731,924 1,223,302
Total current liabilities 44,749,432 33,830,873
Long-term debt “ noncurrent installments (Note 10) 18,609,987 1,082,543
Reserve for losses on credit sales (Note 7) 3,000,000 1,863,992
Deferred income taxes (Note 11) 851,265 3,114,757
Total liabilities 67,210,684 39,892,165

Stockholders™ Equity (Notes 10 and 12)
Common stock ” $.50 par value per share; authorize 10,000,000
shares; issued and outstanding 3,733,968 shares in 1986 and
3,488,968 shares in 1985 1,866,984 1,744,484
Additional paid-in capital 3,508,351 2,549,916
Retained earnings 8,791,784 6,758,359
Total stockholders™ equity 14,167,119 11,052,759
Commitments and contingent liabilities (Notes 3 and 13)
$81,377,803 $50,944,924
204 Liability and Equity Analysis




5-38
Liability and Equity Analysis




CONSOLIDATED STATEMENTS OF EARNINGS

1986 1985 1984
Years Ended December 31,

Revenues:
Net sales $106,095,667 $68,674,779 $30,480,571
Finance participation income 12,084,108 9,715,558 5,221,279
Insurance commissions 721,758 413,282 231,618
Interest 338,447 163,663 123,564




Manufactured Homes
Other 1,024,974 558,706 138,770
Total revenues 120,264,954 79,525,988 36,195,802
Costs and expenses:
Cost of sales 86,212,901 56,222,412 24,324,851
Selling, general and administrative 22,852,093 13,639,942 5,895,891
Provision for losses on credit sales (Note 7) 3,777,900 793,497 253,004
Interest 3,367,940 1,824,588 570,527
Total costs and expenses 116,210,834 72,480,439 31,044,273
Earnings before income taxes 4,054,120 7,045,549 5,151,529
Income taxes (Note 11) 2,020,695 3,327,224 2,457,000
Earnings before cumulative effect of change in
accounting principle (Note 2) 2,033,425 3,718,325 2,694,529
Cumulative effect on prior years of change in
accounting principle for ¬nance participation
(Notes 2 and 11) ” (504,571) ”
Net earnings $2,033,425 $3,213,754 $2,694,529
Earnings per share:
Before cumulative effect of change in
accounting principle $.53 $.98 $.77
Cumulative effect on prior years of change in
accounting principle for ¬nance participa-
tion ” (.13) ”
Net earnings per share ” primary $.53 $.85 $.77
Net earnings per share ” fully diluted $.53 $.84 $.77
Proforma amounts assuming retroactive appli-
cation of the change in accounting principle
(Note 2):
Net earnings $2,033,425 $3,718,325 $2,365,334
Net earnings per share ” primary $.53 $.98 $.68
205
Liability and Equity Analysis




5-39 Part 2 Business Analysis and Valuation Tools




CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION

Year Ended December 31, 1986 1985 1984

Working capital was provided by
Operations:
Net earnings $2,033,425 $3,213,754 $2,694,529
Adjustments for items not requiring (providing) working capital:
Depreciation and amortization 946,858 556,23 6 210,699
Manufactured Homes




Noncurrent deferred income taxes (2,197,061) 78,637 1,412,812
Provision for losses on credit sales, net of actual charges 699,343 (217,402) 134,614
Issuance of nonquali¬ed stock options 142,000 206,000 ”
Finance participation income (12,084,108) (9,715,558) (5,221,279)
Collections, current and deferred ¬nance participation income
portion of ¬nance participation receivable 7,503,502 8,725,359 3,316,397
Other ” ” 52,181
Working capital provided (used) by operations (2,956,041) 2,847,026 2, 599,953
Proceeds from long-term debt 18,396,000 1,651,822 400,000
Exercise of stock options 938,935 ” ”
Decrease in other assets ” 4,024 ”
16,378,894 4,502,872 2,999,953
Working capital was used for
Net assets, exclusive of working capital of $806,363 in 1985 and
de¬cits in working capital of $1,109,080 in 1986 and
$140,604 in 1984, of acquired companies (Note 3) 1,285,935 422,179 1,220,198
Additions to property, plant and equipment 1,917,489 2,756,178 580,259
Current installments and repayment of long-term debt 1,071,308 1,322,806 70,423
Additions to other assets and excess costs 1,813,191 ” 9,054
6,087,923 4,501,163 1,879,934
Increase in working capital $10,290,971 $ 1,709 $1,120,019

Changes in working capital, by component
Cash and cash equivalents $ 5,823,730 $6,136,129 $ 579,418

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