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Finance participation receivable “ current portion (72,977) 1,193,013 569,838
Other receivables 1,689,189 1,715,543 233,696
Refundable income taxes 778,971 ” ”
Inventories 12,535,556 17,448,795 5,616,654
Prepaid expenses 130,295 371,403 25,918
Deferred income taxes 324,766 102,710 203,000
Notes payable (1,099,971) ” ”
Long-term debt -current installments 289,723 (900,624) (200,000)
Floor plan notes payable (7,739,233) (22,962,163) (3,986,435)
Accounts payable (2,688,690) (1,896,668) (219,293)
Income taxes 1,828,234 (620,489) (1,207,745)
Accrued expenses and other liabilities (1,508,6 22) (585,940) (495,032)
Increase in working capital $10,290,971 $ 1,709 $ 1,120,019
206 Liability and Equity Analysis




5-40
Liability and Equity Analysis




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1986, 1985 and 1984 Under existing ¬nancing arrangements, the majority
of installment contracts are sold, with recourse to
Note 1 unrelated ¬nancial institutions at an agreed upon
Summary of Signi¬cant Accounting Policies rate which is below the contractual interest rate of
the installment contract. At the time of sale, the
Principles of Consolidation and Nature of Business Company receives immediate payment for the
The consolidated ¬nancial statements include the stated principal amount of the installment contract




Manufactured Homes
accounts of Manufactured Homes, Inc. and all sub- and a portion of the ¬nance participation resulting
sidiaries, each wholly-owned, and hereafter referred from the interest rate differential. The remainder of
to collectively as the “Company.” All signi¬cant the interest rate differential is retained by the ¬nan-
intercompany items are eliminated. cial institution as security against credit losses and is
paid to the Company in proportion to customer pay-
The Company is engaged principally in the retail
ments received by the ¬nancial institution. The Com-
sale of new and used manufactured single-family
pany accounts for these transactions as sales in
homes.
accordance with Statement of Financial Accounting
Standards No. 77, “Reporting by Transferors for
Inventories
Transfers of Receivables with Recourse,” and recog-
Inventories are stated at the lower of cost or market,
nizes ¬nance participation income equal to the dif-
with cost being determined using the speci¬c unit
ference between the contractual interest rates of the
method for new and used manufactured homes and
installment contracts and the agreed upon rates to
average cost for materials and supplies.
the ¬nancial institutions; the portion retained by the
¬nancial institutions is discounted for estimated time
Property, Plant and Equipment
of collection and carried at its present value (see
Depreciation of property, plant and equipment is Note 2).
provided principally by the straight-line method over
the estimated useful lives of the respective assets.
Reserve for Losses on Credit Sales
Amortization of leasehold improvements is provided
by the straight-line method over the shorter of the Estimated losses arising from the recourse provi-
lease terms or the estimated useful lives of the sions of the Company™s ¬nancing arrangements
improvements. with unrelated ¬nancial institutions are provided for
currently based on historical loss experience and
Income Taxes current economic conditions and consist of
Deferred income taxes are recognized for income estimated future rebates of ¬nance participation
and expense items that are reported in different income due to prepayment or repossession, esti-
periods for ¬nancial reporting and income tax pur- mated future losses on installment contracts repur-
poses. chased from ¬nancial institutions and estimated
future losses on installment contracts transferred to
Income Recognition new purchasers in lieu of repossession. Actual losses
are charged to the reserve when incurred.
A sale is recognized when payment is received or, in
the case of credit sales, when a down payment (gen-
erally 10% of the sales price) is received and the Excess of Costs over Net Assets of Acquired
Company and the customer enter into an install- Companies
ment contract. Installment contracts are normally
The excess of costs over net assets of acquired com-
payable over periods ranging from 120 to 180
panies is being amortized over 30 years on the
months. Credit sales represent the majority of the
straight-line method.
Company™s sales.
207
Liability and Equity Analysis




5-41 Part 2 Business Analysis and Valuation Tools




were decreased by $538,466 ($.14 per share). Net
Earnings per Share
earnings were further decreased by $504,571 ($.13
Primary earnings per share are based on the
per share), which represents the cumulative effect of
weighted average number of common and common
the change on prior years. Proforma net earnings
equivalent shares outstanding. Such average shares
and earnings per share amounts re¬‚ecting retroac-
are as follows:
tive application of the change are shown in the con-
solidated statements of earnings.
Years Ended
December 31, 1986 1985 1984
Note 3
Outstanding
Acquisitions
Manufactured Homes




shares 3,660,048 3,488,968 3,488,968
Equivalent
On January 6, 1984, Manufactured Homes, Inc.
shares 204,113 313,725 ”
acquired the outstanding common stock of Tri-
3,864,161 3,802,693 3,488,968
County Homes, Inc., a retailer of manufactured
housing located in eastern North Carolina. The pur-
The equivalent shares in 1986 and 1985 represent chase agreement required cash payments of
the shares issuable upon exercise of stock options $400,000 and potential earn-out payments of
and warrants after the assumed repurchase of com- $600,000, all earned at December 31, 1984. The
mon shares with the related proceeds at the average acquisition has been accounted for as a purchase
price during the period. Common equivalent shares and, accordingly, the operations of Tri-County are
were not considered in 1984 as the resulting dilution included in the consolidated ¬nancial statements of
was insigni¬cant. Manufactured Homes, Inc. beginning in 1984. Effec-
tive March 22, 1985, Manufactured Homes, Inc.
Fully diluted earnings per share are based on the
acquired the outstanding common stock of Country
weighted average number of common and common
Squire Mobile Homes, Inc., a retailer of manufac-
equivalent shares outstanding plus the common
tured housing located principally in South Carolina.
shares issuable upon the assumed conversion of the
The purchase agreement required cash payments of
convertible subordinated notes and elimination of
$873,000 and includes potential earn-out payments
the applicable interest expense less related income
of $1,960,000 over the period 1985 to 1990. The
tax bene¬t. In determining equivalent shares, the
potential earn-out is based on a percentage of
assumed repurchase of common shares is at the
Country Squire™s pre-tax earnings as de¬ned. At
higher of the average or period-end price.
December 31, 1986, $642,947 ($396,000 in 1986
Note 2 and $246,947 in 1985) of the potential earn-out
Accounting Change had been earned and recorded as an adjustment of
the purchase price. The acquisition has been
Prior to 1985, the Company recognized ¬nance
accounted for as a purchase and, accordingly, the
participation income without discounting for the esti-
operations of Country Squire are included in the
mated time of collection of the portion retained by
consolidated ¬nancial statements of Manufactured
the unrelated ¬nancial institutions as security against
Homes, Inc. since March 22, 1985. The following
credit losses. However, in 1985 the Company
unaudited proforma data presents the results of
adopted the practice whereby the portion of ¬nance
operations of the Company and Country Squire as if
participation income retained by the ¬nancial insti-
the acquisition had occurred at January 1, 1984.
tutions is recorded at its present value based upon
estimated time of collection. The Company believes
Years Ended December 31, 1985 1984
the new method is preferable since it more accu-
rately re¬‚ects the value of the ¬nance participation
Total revenues $87,729,677 $59,696,534
receivable at the date the installment contracts are
Net earnings 3,090,464 2,812,632
sold to the ¬nancial institutions.
Net Earnings per share:
As a result of this change, earnings in 1985, before Primary $ .81 $ .81
the cumulative effect of the change on prior years, Fully diluted $ .80 $ .81
208 Liability and Equity Analysis




5-42
Liability and Equity Analysis




In September 1986, Manufactured Homes, Inc. Note 4
acquired the outstanding common stock of two Other Receivables
companies engaged in the retail sale of manufac- Other receivables consist of the following:
tured homes. The purchase agreements required
aggregate cash payments of $151,000 and poten- December 31, 1986 1985
tial earn-out payments of $874,000 over the period
Manufacturers™ volume
1987 to 1992. The potential earn-outs are based on
bonuses $1,979,021 $1,557,029
a percentage of the respective companies™ pre-tax
Sundry 1,767,842 500,645
earnings as de¬ned. The acquisitions have been
$3,746,863 $2,057,674
accounted for as purchases and, accordingly, their




Manufactured Homes
operations, which are not material, are included in
Note 5
the consolidated ¬nancial statements of Manufac-
Inventories
tured Homes, Inc., since September 1986. At date
Inventories consist of the following:
of acquisition, one company had operating loss car-
ryforwards of $612,049 and to the extent utilized, December 31, 1986 1985
the income tax reductions will be accounted for as
adjustments of the purchase price. At December 31, New manufactured
1986, $324,510 (tax bene¬t of $159,226) of the homes $31,920,134 $22,766,030
Used manufactured
carryforwards had been utilized.
homes 4,971,040 2,068,099
The net assets, exclusive of working capital of
Materials and supplies 1,272,538 794,027
$806,363 in 1985 and de¬cits in working capital of
$38,163,712 $25,628,156
$1,109,080 in 1986 and $140,604 in 1984, of the
acquired companies were as follows: Note 6
Property, Plant and Equipment
Years Ended
The cost and estimated useful lives of the major
December 31, 1986 1985 1984
classi¬cations of property, plant and equipment are
Finance par- as follows:
ticipation
receivable $ 323,931 $1,337,147 $1,172,853 December 31,
Estimated
Property, Useful Life 1986 1985
plant and
equipment 169,092 747,092 131,367 Land ” $ 735,329 $ 620,083
Other assets 493,089 23,403 61,016 Buildings 15“20 1,660,321 849,427
Long-term yrs.
debt (202,752) (353,527) (70,423) Manufactured
Reserve for homes“
losses on of¬ce units 5“7 yrs. 1,048,571 1,013,543
credit sales (436,665) (1,675,000) (74,615) Leasehold
Other liabili- improvements 3“5 yrs. 615,319
ties ” (679,524) ” Furniture &
Excess of equipment 3“10 yrs. 1,921,101 1,108,123
costs over Vehicles 3“5 yrs. 1,485,222 1,124,154
net assets Signs 3“7 yrs. 38,409 185,196
of acquired
$7,504,272 $5,467,164
companies 939,240 1,022,588 ”
$1,285,935 $ 422,179 $1,220,198
209
Liability and Equity Analysis




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