-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BG1chJO4t1VQozIzJ7hK9kks7HKQKkTv5ldVwvV83EdYJ9Uo5IMZAsdU8DDSTDhc dYEKWloYf4vI9yPVsjlZbg== 0000950153-97-000123.txt : 19970222 0000950153-97-000123.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950153-97-000123 CONFORMED SUBMISSION TYPE: SC 13E3/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19970219 SROS: NASD GROUP MEMBERS: ALFRED GHELFI GROUP MEMBERS: JANAL LTD PARTNERSHIP GROUP MEMBERS: JANET GHELFI SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CAVCO INDUSTRIES INC CENTRAL INDEX KEY: 0000278166 STANDARD INDUSTRIAL CLASSIFICATION: MOBILE HOMES [2451] IRS NUMBER: 860214910 STATE OF INCORPORATION: AZ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SC 13E3/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-39946 FILM NUMBER: 97537969 BUSINESS ADDRESS: STREET 1: 301 E BETHANY HOME RD STE C-178 CITY: PHOENIX STATE: AZ ZIP: 85012 BUSINESS PHONE: 6022650580 MAIL ADDRESS: STREET 1: 301 EAST BETHANY HOME ROAD STREET 2: SUITE C-178 CITY: PHOENIX STATE: AZ ZIP: 85012 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: JANAL LTD PARTNERSHIP CENTRAL INDEX KEY: 0000926376 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: AZ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SC 13E3/A BUSINESS ADDRESS: STREET 1: 1001 N CENTRAL 8TH FLOOR CITY: PHOENIX STATE: AZ ZIP: 85004 BUSINESS PHONE: 6022566263 SC 13E3/A 1 AMENDMENT #1 TO THE SCHEDULE 13E-3 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 RULE 13E-3 TRANSACTION STATEMENT (Pursuant to Section 13(e) of the Securities Exchange Act of 1934 and Rule 13e-3 thereunder) (Amendment No. 1) CAVCO INDUSTRIES, INC. (Name of the Issuer) Cavco Industries, Inc. Al R. Ghelfi Janet M. Ghelfi Janal Limited Partnership (Name of Person(s) Filing Statement) Common Stock, $0.05 par value (Title of Class of Securities) 149567109 (CUSIP Number of Class of Securities) Al R. Ghelfi, 1001 North Central Avenue, Eighth Floor, Phoenix, Arizona 85004, tel. (602) 256-6263 (Name, address and telephone number of person authorized to receive notices and communications on behalf of person(s) filing statement) Copies to: William M. Hardin, Esq. Osborn Maledon, P.A. 2929 North Central Avenue, Suite 2100 Phoenix, AZ 85012-2794 This statement is filed in connection with (check the appropriate box): a. [X] The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the Securities Exchange Act of 1934. b. [ ] The filing of a registration statement under the Securities Act of 1933. 2 c. [ ] A tender offer d. [ ] None of the above Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies. [X] Calculation of Filing Fee Transaction Valuation* Amount of Filing Fee $74,302,191 $14,860.44 * For purposes of calculation of fee only. The transaction valuation is based upon the cash payment per share in the proposed transaction in accordance with Rule 0-11. [X] Check box if any part of the fee is offset as provided by Rule 0-ll(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: $14,860.44 Form or Registration No. Schedule 14A Filing Party: Cavco Industries, Inc. Date Filed: January 7, 1997 2 3 This Amendment No. 1 (the "Amendment") on Schedule 13E-3 amends and supplements the Rule 13E-3 Transaction Statement on Schedule 13E-3 (the "Statement") filed by Al R. Ghelfi, Janet M. Ghelfi and Janal Limited Partnership on January 7, 1997 in connection with a proposal to approve an Agreement and Plan of Merger (the "Merger Agreement") dated as of December 4, 1996, by and among Cavco Industries, Inc. (the "Issuer" or the "Company"), Centex Real Estate Corporation ("CREC"), MFH Holding Company (the "Holding Company"), MFH Acquisition Company (the "Merger Subsidiary") and certain shareholders of the Issuer, Al R. Ghelfi, Janet M. Ghelfi and Janal Limited Partnership (the "Ghelfi Parties"). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Statement. Except as expressly set forth in this Amendment, all information in the Statement remains unchanged. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS. (a)(1) The information set forth in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1996, as amended by the Company's Annual Report on Form 10K/A filed with the Commission on February 19, 1997 (which is incorporated by reference in the Proxy Statement) under the caption "Executive Compensation" is incorporated herein by reference. ITEM 14. FINANCIAL INFORMATION. (a) The information set forth in "Selected Financial Data" is incorporated herein by reference. The information set forth in the Company's Annual Report on Form 10-K for the year ended September 30, 1996, as amended by the Company's Annual Report on Form 10K/A, filed with the Commission on February 19, 1997, and Quarterly Report on Form 10-Q for the quarter ended December 31, 1996 (which are incorporated by reference in the Proxy Statement) is incorporated herein by reference. ITEM 17. MATERIAL TO BE FILED AS EXHIBITS. 99(b)(1) Fairness opinion of Goldman Sachs (incorporated herein by reference to Appendix B to the Proxy Statement). 99(b)(2) Material prepared by Goldman Sachs for the Special Committee of the Board of Directors of the Company. 3 4 SIGNATURE After due inquiry and to the best of its knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct. Date: February 18, 1997 CAVCO INDUSTRIES, INC. By /s/ BRENT GHELFI --------------------------- Brent Ghelfi Its President and Chief Executive Officer /s/ AL R. GHELFI --------------------------- AL R. GHELFI /s/ JANET M. GHELFI ------------------------------ JANET M. GHELFI JANAL LIMITED PARTNERSHIP By: THE 1994 ALSONS TRUST, created February 9, 1994, general partner By /s/ JANET M. GHELFI ---------------------------------- Janet M. Ghelfi, Independent Trustee By /s/ AL R. GHELFI ---------------------------------- Al R. Ghelfi, Family Trustee By: ALFRED AND JANET GHELFI TRUST, created August 24, 1989, general partner By /s/ AL R. GHELFI ---------------------------------- Al R. Ghelfi, Trustee By /s/ JANET M. GHELFI ---------------------------------- Janet M. Ghelfi, Trustee 5 EXHIBIT INDEX EXHIBIT NO. 99(b)(1) Fairness opinion of Goldman Sachs (incorporated herein by reference to Appendix B to the Proxy Statement). 99(b)(2) Material prepared by Goldman Sachs for the Special Committee of the Board of Directors of the Company. EX-99.B2 2 MATERIAL PREPARED BY GOLDMAN SACHS 1 Exhibit 99(b)(2) PRESENTATION TO THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS OF CAVCO INDUSTRIES, INC. [Goldman Sachs Logo] GOLDMAN, SACHS & CO. DECEMBER 4, 1996 2
TABLE OF EXHIBITS SCOPE OF THE ASSIGNMENT 1 SUMMARY OF THE TRANSACTION 2 MANUFACTURED HOUSING INDUSTRY OVERVIEW 3 BUSINESS SUMMARY OF THE COMPANY 4 SUMMARY HISTORICAL AND PROJECTED FINANCIAL INFORMATION 5 RESEARCH ANALYSTS' EARNINGS ESTIMATES AND COMMENTS 6 STOCK PRICE HISTORY 7 SHAREHOLDER ANALYSIS 8 COMPARISON TO OTHER PUBLICLY TRADED COMPANIES 9 COMPARISON OF OTHER RECENT INDUSTRY ACQUISITIONS 10 DISCOUNTED CASH FLOW ANALYSIS 11 ANALYSIS AT ACQUISITION PRICE 12 CENTEX ACQUISITION ANALYSIS 13 PRESENT VALUE OF CONSIDERATION LIKELY TO BE RECEIVED BY MAJORITY SHAREHOLDERS 14
3 SCOPE OF THE ASSIGNMENT We have been engaged by the Special Committee of the Board of Directors (the "Special Committee") of Cavco Industries, Inc. (the "Company") to render an opinion regarding the fairness of the consideration to be received by the independent shareholders of the Company in the acquisition of a majority interest in the Company by Centex Corporation ("Centex"). The independent shareholders collectively own shares representing approximately 49% of the fully diluted shares of the Company. The other 51% of the shares of the Company are owned, directly or indirectly, by the Company's founder and Chairman, Alfred R. Ghelfi, and his wife. 1 4 SUMMARY OF THE TRANSACTION THE AGREEMENTS The Company, the Company's majority shareholders (Al BETWEEN THE Ghelfi and his wife) and Centex intend to enter into a COMPANY, THE Merger Agreement, a Shareholders' Agreement, a Voting COMPANY'S MAJORITY Agreement and a Stock Purchase Agreement in order to SHAREHOLDERS AND consummate the acquisition of the Company by Centex as CENTEX EFFECTIVELY summarized below. ALLOW CENTEX TO ACQUIRE 78% OF THE Centex will purchase all of the shares of the Company COMPANY IN THE owned by the independent shareholders (which represent NEAR TERM FOR $26.75 approximately 49% of the fully diluted shares of the PER SHARE Company) for $26.75 in cash. Centex will concurrently purchase an additional 29% of the Company from the Company's majority shareholders for $26.75 in cash, bringing Centex's ownership percentage to 78%. Once Centex acquires 78% of the Company, the majority shareholders have an option to put their remaining 22% ownership stake to Centex as follows: - At the end of year three following the purchase from the independent shareholders for a purchase price equal to 6x the latest twelve months' earnings before taxes - At the end of year four following the purchase from the independent shareholders for a purchase price equal to 7x the latest twelve months' earnings before taxes - At the end of year five following the purchase from the independent shareholders for a purchase price equal to 8x the latest twelve months' earnings before taxes - At the end of every other year thereafter for 8x the latest twelve months' earnings before taxes If the majority shareholders do not exercise their put rights for their remaining 22% ownership interest by the end of the fifth year following the purchase from the independent shareholders, Centex has a call option on this remaining 22% interest as follows: - At the end of year five following the purchase from the independent shareholders for a purchase price equal to 8x the latest twelve months' earnings before taxes, subject to a minimum price of $26.75 per share - At the end of every other year thereafter for 8x the latest twelve months' earnings before taxes, subject to a minimum price of $26.75 per share The Company's Board of Directors, by virtue of its fiduciary obligations, may accept a higher offer from a third party provided that such offer results in cash consideration to independent shareholders of at least $27.33 per share and satisfies certain other conditions. 2 5 TRANSACTION PRICING SUMMARY
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS) - ------------------------------------------------------------------------------- Consideration per Share: $26.75 Fully Diluted Shares: 3,561,093 Aggregate Equity Consideration: $95.26 Net Debt Outstanding 6.29 ------ Total Enterprise Value $101.55 Shares Held by Independent Shareholders: 1,730,364 Aggregate Consideration to Independent Shareholders: $46.29 - -------------------------------------------------------------------------------
MULTIPLE/PREMIUM - ------------------------------------------------------------------------------- 1996 (LTM) Revenues (a) $130.0 .78x 1996 (LTM) EBITDA (a) 13.9 7.3 1996 (LTM) Operating Income (a) 12.1 8.4 1996 (LTM) EBT (b) 11.6 8.2 1996 (LTM) Net Income after Discontinued Operations (b) 6.2 15.3 1997E Net Income (b)(c) 8.1 11.7x PREMIUM TO STOCK PRICE: December 2, 1996 $22.50 18.9% Last 10 Day Average from 12/2/96 21.76 22.9% - -------------------------------------------------------------------------------
(a) Multiple based on assumed Total Enterprise Value. (b) Multiple based on Aggregate Equity Consideration. (c) Based on management's projections dated November 23, 1996. 3 6 OVERVIEW OF MANUFACTURED HOUSING INDUSTRY ACCORDING TO THE - Manufactured homes differ from conventional MANUFACTURED site-built homes HOUSING INSTITUTE, -- required to be permanently affixed to a steel NEW MANUFACTURED chassis HOME SHIPMENTS -- must be able to attach wheels to enable transport INCREASED TO 339,600 of home (although homes are rarely relocated due to IN 1995 (AN 11% the relatively high moving costs) INCREASE OVER 1994), REPRESENTING 33.2% - Manufactured homes are a low cost alternative to OF ALL NEW SINGLE conventional single family homes and come in two FAMILY HOMES BUILT forms: IN 1995. THE -- single section homes: typically 12'-18' by NUMBER OF NEW 60'-80' SINGLE FAMILY SITE- -- multi-section homes: consist of two or more BUILT HOMES sections, each transported on a chassis, and then DECLINED 7.5% "married" on the land site to become one home DURING THAT SAME PERIOD - The average single section manufactured home in 1994 retailed for $23,900 and consisted of 1,085 square feet. The average multi-section home retailed for $42,900 and consisted of 1,565 square feet of living space - The 1993 median income of manufactured home buyers was $22,300 while the average age was 51. Both figures have increased over the past decade - The low cost of manufactured homes makes the market relatively insensitive to interest rates. However, the relatively low income of manufactured home purchasers makes the market sensitive to economic downturns and recessionary forces - According to the Manufactured Housing Institute, new manufactured home shipments increased to 339,600 in 1995 (an 11% increase over 1994), representing 33.2% of all new single family homes built in 1995. The number of new single family site-built homes declined 7.5% during that same period - Analysts currently estimate that approximately 50% of the new manufactured homes developed each year are located in manufactured housing communities - The Manufactured Housing Institute has determined that: -- manufactured housing has increased as a percent of the U.S. housing market every year for the past 50 years -- one out of every fourteen homes (or approximately 7.0%) in the U.S. is a manufactured home 4 7 MANUFACTURED HOUSING INDUSTRY OUTLOOK GS&CO. EQUITY - Key factors driving the market share growth in the RESEARCH REMAINS single family housing market are the dramatically VERY POSITIVE ON THE improved product offering and value due to the MANUFACTURED efficiency of assembly-line production. HOUSING INDUSTRY - As manufactured homebuilders diversify their geographic base, and builders continue to expand their community offerings of factory-built homes, we believe that consumer acceptance will continue to grow. - As awareness of the different designs, quality building materials, and highly competitive price tags versus stick-built homes is expanded, we believe that demand for these homes will grow. - We are expecting an expanded business cycle for manufactured housing companies versus conventional builders. - We expect manufactured housing to comprise in excess of 30% and 40% of total single-family starts and sales, respectively, by the year 2000. This gain likely will be bolstered by continuing and diversified growth in the employment base within traditionally strong markets for manufactured housing (specifically the Southeast and Southwest). - We also expect the continuing influx of alien immigration and net migration into these traditionally strong markets. These demographic factors are expected to fuel the demand for affordable housing well into the next century. 5 8 THE COMPANY BUSINESS SUMMARY OVERVIEW - The Company is the largest manufacturer of residential and recreational housing in Arizona - In addition to manufactured housing the Company is engaged in two separate businesses: -- Real estate development using manufactured homes -- Storage container leasing Both of these are very small compared to the Company's core manufactured housing business. MANUFACTURED HOUSING (APPROXIMATELY 89% OF 1996 NET SALES) - The Company produces single and multiple-section homes and offers floor plans ranging from 600 to over 2,000 square feet -- Models typically retail between $17,000 and $100,000 - The manufactured housing products are transported from the factory to the dealer retail outlet and ultimately to the site in one or more sections and are installed utilizing their own chassis on either a temporary or permanent foundation -- Although the manufactured housing products are designated to be transportable, fewer than 5% are ever moved off the owner's original site - The Company has approximately a 35% market share for manufactured housing in Arizona and is one of the top 20 manufacturers in the U.S. - ----------------- Note: This data has been derived from Company provided sources and has not been independently verified by Goldman, Sachs & Co. 6 9 THE COMPANY BUSINESS SUMMARY - - The Company has three factories located in Arizona -- Litchfield facility -- Durango facility -- Specialty facility - - More than 150 independent dealerships market and distribute the Company's homes -- The dealerships are located in 10 western states, Canada and Japan - - The Company's sales in 1996 were distributed as follows: -- Arizona - 60% -- New Mexico - 20% -- Utah - 10% -- Others - <10% REAL ESTATE DEVELOPMENT (APPROXIMATELY 5% OF 1996 NET SALES) - - Through its 100% owned subsidiary, Sun Built, the Company develops manufactured housing subdivisions and sells manufactured homes in established subdivisions -- The average size of these homes ranges from 576 to 1,984 square feet, with retail selling prices (excluding land) ranging from $26,000 to $87,000 - - The Company has indicated that it would not expand this business segment should the merger not be completed -- This segment had an operating profit of $262,000 in FY1996 (representing 2% of the Company's total operating profit) and a net loss in FY 1996 of ($170,000) - ------------------ Note: This data has been derived from Company provided sources and has not been independently verified by Goldman, Sachs & Co. 7 10 THE COMPANY BUSINESS SUMMARY STORAGE CONTAINER LEASING (APPROXIMATELY 6% OF 1996 NET SALES) - - The Company sells and leases temporary security storage containers and trailer vans -- Containers are used as ocean cargo containers, previously used to secure overseas shipment of packaged goods -- The Company purchases the containers from various vendors and refurbishes them at its fabricating facility -- This segment had an operating profit of $650,000 in FY1996 (representing 5% of the Company's total operating profit) and a net loss in FY 1996 of ($220,000) ________________ Note: This data has been derived from Company provided sources and has not been independently verified by Goldman, Sachs & Co. 8 11 HISTORICAL AND PROJECTED CONSOLIDATED INCOME STATEMENTS
--------------------------------------- ---------------------------------------------------- HISTORICAL(a) PROJECTIONS(b) 1993 1994 1995 1996 1997 1998 1999 2000 2001 --------------------------------------- ---------------------------------------------------- NET SALES $56,916 $90,596 $112,682 $130,105 $143,132 $178,671 $196,957 $206,236 $210,441 EBITDA(c) 3,836 7,899 10,042 13,925 16,839 20,224 22,461 23,997 24,901 OPERATING INCOME 2,806 6,524 8,314 12,107 14,962 18,179 20,485 21,976 22,779 EBT 2,626 6,403 7,759 11,558 13,516 17,999 21,023 23,094 24,273 NET INCOME FROM CONTINUING OPERATIONS 1,515 3,897 4,644 6,933 8,110 10,800 12,614 13,857 14,564 NET INCOME FROM DISCONTINUED OPERATIONS 634 2,709 (406) (695) 0 0 0 0 0 --------------------------------------- ---------------------------------------------------- NET INCOME $2,150 $6,606 $4,238 $6,237 $8,110 $10,800 $12,614 $13,857 $14,564 EPS CONTINUING OPERATIONS $0.45 $1.15 $1.37 $2.05 $2.28 $3.03 $3.54 $3.89 $4.09 EPS $0.64 $1.95 $1.25 $1.84 $2.28 $3.03 $3.54 $3.89 $4.09 ANNUAL GROWTH SALES 59.2% 24.4% 15.5% 10.0% 24.8% 10.2% 4.7% 2.0% EBITDA 105.9% 27.1% 38.7% 20.9% 20.1% 11.1% 6.8% 3.8% MARGINS EBITDA 6.7% 8.7% 8.9% 10.7% 11.8% 11.3% 11.4% 11.6% 11.8% OPERATING INCOME 4.9% 7.2% 7.4% 9.3% 10.5% 10.2% 10.4% 10.7% 10.8% EBT 4.6% 7.1% 6.9% 8.9% 9.4% 10.1% 10.7% 11.2% 11.5%
(a) Fiscal years ending September 30. (b) Provided by Company management. Goldman, Sachs & Co. is not commenting on the Company's projections. (c) EBITDA calculated as operating income plus depreciation and amortization. 9 12 SUMMARY BALANCE SHEET AS OF SEPTEMBER 30, 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS Cash $13,298 Accounts and Notes Receivable 3,040 Total Inventories 10,878 Other Current Assets 1,792 TOTAL CURRENT ASSETS $29,007 Net Property, Plant & Equipment 9,994 Net Leasable Assets 21,312 Notes Receivable 1,502 Investment in Partnerships 2,644 Other Assets 986 TOTAL ASSETS $65,446 9/30/96 TOTAL DEBT/TOTAL BOOK CAP 40.6% NET DEBT/TOTAL BOOK CAP 13.0% TOTAL DEBT/TOTAL MARKET CAP(a) 19.6% NET DEBT/TOTAL MARKET CAP(a) 6.3% 1995 1996 EBITDA/INTEREST 9.45 8.39 OPERATING INCOME/INTEREST 7.81 7.61 (EBITDA-CAPEX)/INTEREST 7.27 7.12 TOTAL DEBT/EBITDA 1.63 1.47 NET DEBT/EBITDA 0.81 0.47
LIABILITIES AND SHAREHOLDER'S EQUITY Notes Payable $ 704 Current Portion of Long Term Debt 3,410 Accounts Payable 4,991 Accrued Expenses 7,958 Income Taxes 2,563 TOTAL CURRENT LIABILITIES $19,625 Long Term Debt 15,480 Deferred Taxes & Other 1,670 Shareholder's Equity 28,671 TOTAL LIABILITIES AND EQUITY $65,446
(a) Market Capitalization is calculated as of December 2, 1996 at a share price of $22.50. 10 13 KEY DRIVERS OF THE COMPANY'S FINANCIAL PERFORMANCE KEYS TO SUCCESS - - Customization. Consumer expectations have been elevated, making frequent design updates necessary and requiring the flexibility to satisfy individual customer needs. The Company has a relatively sophisticated design team and process in place that should enable the Company to remain competitive in quality. - - Positive market trends. Population and employment growth rates in the Southwest and Mountain States are higher than other parts of the country. In combination with greater acceptability at the community level, both should help expand the Company's opportunity. - - Dealership network. For manufactured homes the Company has an excellent distribution network composed of seasoned dealers. Furthermore, expertise in establishing and maintaining these relationships is being leveraged in the container leasing segment. - - Product line. The Company has effectively used lower-end products to enter markets, following with higher-end models as dealer relationships allow. The Company will continue to emphasize frequent design innovations and customization as a means to stay competitive. ISSUES - - Distribution. There has been a consolidation of independent dealerships as some of the larger manufacturers buy up dealerships to start internal retail sales programs. The Company has not yet embraced retailing, but if the standard distribution system is irrevocably altered, the Company may not be able to rely on dealerships alone for distributing its product. - - Production capacity. Even after adding a new facility in 1993 and adding a second assembly line to that same factory, real growth could eventually be capped by production capacity. In order to maintain its current growth rate, management is adding a fourth plant outside Belen, N.M. 11 14 SUMMARY OF RECENT RESEARCH REPORTS -- THE COMPANY
EPS ESTIMATES P/E RATIO INSTITUTIONAL STOCK --------------- ------------- REPORT DATE PRICE RECOMMENDATION 1996E FY 1997 1996E 1997E ANALYSTS' KEY COMMENTS - ------------- -------- ------ --------------- ----- ------- ----- ----- --------------------------------------------- HD Brous & 05/16/96 $14.25 Buy $1.59 $1.94 8.9x 7.3x - The Company experienced substantial growth Co. Inc. in revenue in the last 4 years, with 4 year compound annual growth in revenue at 28%. - The Company manufactured 45% of homes in AZ in 1995 and is among the top 20 manufacturers in the US. - The Company intends to expand geographical- ly and to target markets with high growth in manufactured housing sales. - After modernizing its factories, the Company achieved a production rate per factory above the industry average. - In late 1993, the Company began selling and leasing all-steel storage containers and trailer vans through a subsidiary, National Security Containers. This seg- ment contributes only 4% of revenues but is expected to grow substantially. - The Company's shares trade at 8.9 times HD Brous & Co.'s 1996 earnings estimates, indicating they are undervalued relative to the industry. - ------------------------------------------------------------------------------------------------------------------------------------ Torrey Pines 02/09/96 $13.50 Long Term Buy $1.70 N.A. 7.9x N.A. - Revenues have grown from $37 million to Securities $114 million during the past 5 years, which represents a compound growth rate of nearly 30% per year. - Earnings have grown in excess of 40% over the past 5 years from $.24 per share to $1.34 per share. - The Manufactured Home Industry has grown at a 20% rate each year which should fuel the Company's continued revenues and earnings growth. - The Company would be a wise investment because of its low volatility; Torrey Pines Securities sees it as more of a "buy and hold" investment as opposed to a trading security. - ------------------------------------------------------------------------------------------------------------------------------------
12 15 THE COMPANY DAILY COMMON STOCK PRICE AND TRADING VOLUME HISTORY [GRAPH] 13 16 THE COMPANY COMMON STOCK PRICE AND TRADING VOLUME HISTORY 3 YEAR PRICE HISTORY [GRAPH] 5 YEAR PRICE HISTORY [GRAPH] 14 17 THE COMPANY TEN YEAR WEEKLY COMMON STOCK PRICE & TRADING VOLUME HISTORY [GRAPH] 15 18 THE COMPANY COMMON STOCK PRICE AND TRADING VOLUME HISTORY ONE YEAR PRICE HISTORY [GRAPH] THREE YEAR PRICE HISTORY [GRAPH] MANUFACTURED HOUSING COMPOSITE: AMERICAN HOMESTAR CAVALIER HOMES LIBERTY HOMES NOBILITY HOMES SCHULT HOMES SKYLINE CORP. SOUTHERN ENERGY HOMES 16 19 THE COMPANY WEEKLY INDEXED COMMON STOCK PRICE HISTORY MANUFACTURED [GRAPH] HOUSING COMPOSITE: AMERICAN HOMESTAR CAVALIER HOMES LIBERTY HOMES NOBILITY HOMES SCHULT HOMES SKYLINE CORP. SOUTHERN ENERGY HOMES 17 20 THE COMPANY SHARES TRADED AT SPECIFIC PRICES 11/22/96 to 12/2/96 ONE MONTH 12/2/96 [GRAPH] [GRAPH] ONE YEAR TO 12/2/96 THREE YEARS TO 12/2/96 [GRAPH] [GRAPH] Source: Muller 18 21 COMMON STOCK OWNERSHIP (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
$ VALUE OF % OF TOTAL SHARES CONSIDERATION TO BE NUMBER OF SHARES OUTSTANDING(c) RECEIVED - ----------------------------------------------------------------------------------------------------- DIRECTORS AND INSIDERS MAJORITY SHAREHOLDER Alfred R Ghelfi 1,830,729 54.1% $48,972 OTHER DIRECTORS & INSIDERS Stephen Kleemann(b) 272,025 8.0 7,277 Ruth Smith 42,340 1.3 1,133 William Blandin(b) 29,900 0.9 800 Robert Ward(b) 3,750 0.1 100 INSTITUTIONS Fidelity Mgmt & Res Co. 240,550 7.1% $ 6,435 Barclays Bank PLC 67,640 2.0 1,809 Kennedy Capital Management 66,874 2.0 1,789 First Union Corporation 35,000 1.0 936 Rosenberg Inst. Eq. Management(a) 12,100 0.4 324 ANB Investment Management(a) 1,650 0.0 44 First Interstate Bancorp 375 0.0 10 RCB Trust Company 300 0.0 8 Bankers Trust NY Corp. 150 0.0 4 Travelers Inc. 150 0.0 4 NON-INSTITUTIONS 779,435 23.0% $20,850 TOTAL SHARES OUTSTANDING 3,382,968 100.0% $90,495 - ----------------------------------------------------------------------------------------------------
(a) Ownership based on Spectrum as of September 1996, all other data as of June 1996. (b) Ownership based on the Company's proxy statement dated January 26, 1996. (c) Excludes 128,125 shares to be issued pursuant to a convertible note and 50,000 employee stock options likely to be exercised. Fully diluted shares outstanding including these items are 3,561,093. 19 22 PUBLIC MARKET VALUATION COMPARISON OF SELECTED COMPANIES (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
EARNINGS ESTIMATES EQUITY DEBT/TOTAL --------------------- PRICE SHARES MARKET TOTAL MARKET LTM FYE FYE DEC. 2 OUTSTANDING CAP DEBT CAP 1996 1996 1997 ==================================================================================================== - ---------------------------------------------------------------------------------------------------- CAVCO INDUSTRIES(c) $22.50 3,561 $ 80,125 $19,593 19.6% $1.84 $1.84 $2.28 - ---------------------------------------------------------------------------------------------------- American Homestar(d) 18.25 8,701 158,789 3,593 2.2% 1.28 1.23 1.50 Nobility Homes(e) 12.50 2,991 37,387 658 1.7% 0.78 0.84 0.98 Liberty Homes(f) 13.50 4,281 57,797 0 0.0% 1.17 N/A N/A Southern Energy Homes(g) 12.00 15,102 181,220 29 0.0% 0.97 1.01 1.15 Cavalier Homes 11.13 10,109 112,466 6,260 5.3% 1.04 1.09 1.29 Skyline Corp.(h) 26.25 10,143 266,250 0 0.0% 2.05 1.85 1.23 Schult Homes Corp.(i) 23.25 3,747 87,120 1,073 1.2% 2.15 1.81 2.20 - ---------------------------------------------------------------------------------------------------- HIGH 5.3% LOW 0.0% MEAN(j) 1.5% MEDIAN(j) 1.2% - ---------------------------------------------------------------------------------------------------- ====================================================================================================
LEVERED MARKET CAPITALIZATION AS A MULTIPLE P/E RATIO -------------------- --------------------- LTM FREE LTM FYE FYE DIVIDEND CASH LTM 1996 1996 1997 DIVIDEND YIELD FLOW(a) EBITDA(b) ======================================================================================== - ---------------------------------------------------------------------------------------- CAVCO INDUSTRIES(c) 12.2x 12.2x 9.9x $0.00 0.0% 14.8x 7.2x - ---------------------------------------------------------------------------------------- American Homestar(d) 14.3 14.8 12.2 0.00 0.0% 24.3 7.2 Nobility Homes(e) 16.0 14.9 12.8 0.00 0.0% 17.1 10.4 Liberty Homes(f) 11.5 N/A N/A 1.12 8.3% 0.0 6.0 Southern Energy Homes(g) 12.4 11.9 10.4 0.00 0.0% 15.8 7.4 Cavalier Homes 10.7 10.2 8.6 0.48 4.3% 31.1 5.1 Skyline Corp.(h) 12.8 14.2 21.3 0.60 2.3% 16.0 7.8 Schult Homes Corp.(i) 10.8 12.8 10.6 0.20 0.9% 19.6 5.2 - --------------------------------------------------------------------------------------- HIGH 16.0x 14.9x 21.3x 8.3% 31.1x 10.4x LOW 10.7x 10.2x 8.6x 0.0% 0.0x 5.1x MEAN(j) 12.8x 13.1x 12.6x 2.3% 17.7x 7.0x MEDIAN(j) 12.6x 13.5x 11.4x 0.9% 17.1x 7.2x - --------------------------------------------------------------------------------------- =======================================================================================
(a) Free Cash Flow is calculated as Net Income plus Depreciation/Amortization, less capital expenditures and dividends. (b) EBITDA is calculated as Operating Income plus Depreciation and Amortization. (c) The Company's earnings for 1996 are actual numbers; 1997 estimate is taken from management projections provided by the Company. Fiscal Year end is Sept. 30, 199x. The Company's LTM Free Cash Flow adds back a loss on discontinued operations of $695,497. (d) American Homestar Fully Diluted shares outstanding include 74,750 options available for grant as of May 31, 1996. (e) Nobility Homes Fully Diluted Shares outstanding include 20,000 options as of Nov. 1995. (f) Liberty Homes Shares outstanding include 2,535,496 Class A shares and 1,745,759 Class B shares outstanding. Class A shares have no voting rights; Class B shares have voting rights and are convertible at a 1:1 ratio into Class A. Liberty Homes net income for the 9 months ending Sept. 30, 1996 is adjusted downward for an after tax gain of $345,000. (g) Southern Energy Homes declared a 3 for 2 stock split on July 3, 1996, in the form of a 50% stock dividend. All numbers reflect this occurrence. (h) Skyline FYE 1996 & LTM 1996 are actual numbers. FYE 1997 is based on IBES. FYE is May 31, 199x. (i) Schult FYE 1996 & LTM 1996 are actual numbers. FYE 1997 is based on a First Call Consensus Estimate. FYE is June 30, 199x. (j) Mean and Median do not include Cavco Industries. (k) Earnings estimates for American Homestar, Nobility Homes, Liberty Homes, Southern Energy Homes and Cavalier Homes are First Call estimates as of Nov. 19, 1996. Their Fiscal Year Ends are as follows: American Homestar - 5/31/96; Nobility Homes - 11/4/96; Liberty Homes - 12/31/96; Southern Energy Homes - 12/31/96; Cavalier Homes - 12/31/96. 20 23 MANUFACTURED HOME INDUSTRY MERGER TRANSACTIONS (COMPLETED AND PENDING DEALS 1991 TO PRESENT)
CONSIDERATION AS A MULTIPLE OF (a): ---------------------------------------- PREMIUM DESCRIPTION DATE AGGREGATE OPERAT- TO OF THE ANNOUNCED CONSIDERATION BOOK ING NET STOCK TRANSACTION/ (COMPLETED) TARGET ACQUIRER (MILLIONS) VALUE REVENUES EBITDA INCOME INCOME PRICE COMPANY - ----------- --------------- -------- ------------- ----- -------- ------ ------- ------ -------- ------------------------- 8/22/96 BELLCREST HOMES BELMONT $13.0 (con- N.A. 0.34(b) N.A. N.A. N.A. N.A. Bellcrest operates two (10/29/96) INC. HOMES, sisting of plants in Georgia, one of INC. approximately which opened in early $9.5 in cash 1996, and sells to 90 and $3.5 in independent dealers in profit- Georgia, South Carolina related and North Carolina payments) 8/14/96 REDMAN INDUS- CHAMPION $335.2 or 4.8x 0.53x 7.2x 8.1x 13.2x 15.9%(c) Champion Enterprises (10/24/96) TRIES, INC. ENTER- $24.65 per acquired Redman Indus- PRISES, share tries in a stock swap INC. transaction. Redman shareholders received 1.24 Champion common shares for each Redman share held. Redman operates 18 plants and sells houses to 1,400 dealers in 40 states 4/4/96 LEGEND REALTY, CHAMPION Approximately 4.4x 0.36x N.A. 5.6x 7.3x N.A. Champion Enterprises, (4/26/96) INC. ENTER- $33.0 (con- Inc. acquired Legend GRAND MANOR PRISES, sisting of Realty, Inc. INC. INC. $18.5 in cash Concurrently, HOMES OF and $14.5 in Champion Enterprises LEGEND profit- acquired Grand Manor related and all the outstanding payments). stock of Homes of Legend. 12/04/95 GUERDON HOMES, AMERICAN $27.0 (con- N.A. 0.26x(d) N.A. N.A. N.A. N.A. American Homestar (AH) (9/27/96) INC. (a unit HOMESTAR sisting of exercised a nine-month of Guerdon CORP. 256,495 option to acquire all the Holdings) common outstanding capital stock shares valued of Guerdon Homes, a unit at $4.04, $14 of Guerdon Holdings for in the assump- $27.0. Guerdon operates tion of lia- four plants and uses 150 bilities, $6 independent dealers to in 8.5% con- market its homes in vertible three market areas. notes, and a $3 loan in the form of an 8.5% subor- dinated debenture). 8/29/95 SPIRIT HOMES, BELMONT $9.8 (con- 2.5x 0.23x 4.5x 5.1x 7.4x N.A. Belmont Homes, Inc. a (10/12/95) INC. HOMES, sisting of Mississippi corporation, INC. $2.5 in cash acquired 100% of the and $7.3 in stock of Spirit Homes, promissory Inc., a producer and notes) manufacturer of homes in Conway, Arkansas, pursuant to a Stock Purchase Agreement. Spirit will continue to operate as a producer of manufactured homes. 5/9/95 DESTINY OAKWOOD $21.7 N.A. 0.24x(c) N.A. N.A. N.A. N.A. Oakwood Homes acquired (6/30/95) INDUSTRIES, HOMES, Destiny Industries in INC. CORP. exchange for 925,000 common shares, in a stock swap merger valued at $21.7. Destiny operates four plants and sells houses to 195 dealers in the deep South. CONTINUED
21 24 MANUFACTURED HOME INDUSTRY MERGER TRANSACTIONS (COMPLETED AND PENDING DEALS 1991 TO PRESENT)
CONSIDERATION AS A MULTIPLE OF (a): ---------------------------------------- PREMIUM DESCRIPTION DATE AGGREGATE OPERAT- TO OF THE ANNOUNCED CONSIDERATION BOOK ING NET STOCK TRANSACTION/ (COMPLETED) TARGET ACQUIRER (MILLIONS) VALUE REVENUES EBITDA INCOME INCOME PRICE COMPANY - ----------- --------------- -------- ------------- ----- -------- ------ ------- ------ -------- ------------------------- 1/6/95 CHANDELEUR CHAMPION $46.9 2.9x 0.51x 3.8x 3.9x 7.9x N.A. Champion Enterprises (2/3/95) HOMES, INC. AND ENTER- acquired Chandeleur CREST RIDGE PRISES, Homes and Crest Ridge HOMES, INC. INC. Homes concurrently in transactions contingent upon each other. 7/6/94 IMPERIAL SOUTHERN $7.2 (con- 3.7x 0.29x 3.7x 3.9x 7.0x N.A. (8/2/94) MANUFACTURED ENERGY sisting of HOMES HOMES, $5.7 in INC. cash and $1.5 in assumption of liabil- ities) 6/27/94 GOLDEN WEST OAKWOOD $15.5 1.8x 0.15x 5.3x 7.1x 8.9x N.A. Oakwood Homes (OH) (10/3/94) HOMES HOMES acquired all the CORP. outstanding shares of Golden West Homes for 700,000 OH common shares in a stock swap transaction valued at $15.5 mil. Golden West operates three factories and sells homes to 150 independent dealers in Oregon, Washington and California. 1/31/94 DUTCH HOUSING, CHAMPION $40.0 3.0x 0.44x N.A. 3.7x 6.2x N.A. (3/10/94) INC. ENTER- PRISES, INC. LOW: 1.8x 0.15x 3.7x 3.7x 6.2x 15.9% MEDIAN: 3.0x 0.32x 4.5x 5.1x 7.4x 15.9% HIGH: 4.8x 0.53x 7.2x 8.1x 13.2x 15.9% - ---------------- Notes: (a) Based on most recently filed public documents prior to acquisition. (b) Based on first six month 1996 revenues annualized. (c) Based on ten day average closing price starting five days prior to announcement of merger. (d) Based on sales as stated in acquisition press release.
22 25 OBSERVATIONS ON MANUFACTURED HOME INDUSTRY ACQUISITIONS Based on analysis of recent acquisitions in the industry, public statements by certain publicly traded manufactured housing companies and discussions with certain equity research analysts familiar with the manufactured housing industry, it appears that, in general, the range of acquisition multiples for small, privately held, single-market focused manufactured housing companies is approximately 8-10x LTM earnings. The only recent large acquisition in this industry occurred in October 1996 when Champion Enterprises acquired Redman Industries for $335.2 million, which represented a multiple of 13.2x LTM earnings and a 15.9% premium to Redman's recent stock price. Redman was one of the largest companies in the manufactured housing sector and had a national presence. Redman operated 18 production plants throughout the U.S., and had LTM revenues of $614 million, over 1,400 retail dealers, and sales (in over 40 states) of approximately 25,000 homes in the past year. The Company is not as large or as geographically diverse as Redman. However, the Company is more diverse than the single market manufactured housing companies mentioned above. Its primary market is Arizona, which accounted for more than 60% of sales this past year. The Company also sells houses in nine other states (with New Mexico accounting for more than 20% of sales and Utah accounting for approximately 10% of sales). 23 26 COMPARISON OF TRANSACTION TO OTHER RECENT INDUSTRY ACQUISITIONS ($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
MULTIPLE/PREMIUM OF OTHER RECENT INDUSTRY ACQUISITIONS ------------------------------------------------------ LOW MEDIAN HIGH - ----------------------------------------------------------------------------------------------------------------------------------- MULTIPLE OF: ---------------------------------------------------------- September 30, 1996 Book Value $28.7 | | * | ---------------------------------------------------------- 1.8x 3.0x 3.3x 4.8x ---------------------------------------------------------- 1996 Revenues $130.0 | | | ---------------------* ---------------------------------------------------------- 0.15x 0.32x 0.53x 0.78x ---------------------------------------------------------- 1996 EBITDA $13.9 | | | -----* ---------------------------------------------------------- 3.7x 4.5x 7.2x 7.3x ---------------------------------------------------------- 1996 Operating Income $12.1 | | | -* ---------------------------------------------------------- 3.7x 5.1x 8.1x 8.4x ---------------------------------------------------------- 1996 Net Income $6.2 | | | ---* ---------------------------------------------------------- 6.2x 7.4x 13.2x 15.3x PREMIUM TO STOCK PRICE: ---------------------------------------------------------- December 2, 1996 $22.50 | | -----* ---------------------------------------------------------- 0% 15.9% 18.9x ---------------------------------------------------------- Last 10 Day Average $21.76 | | ------------------------------* ---------------------------------------------------------- 0% 15.9% 22.9%
Note: The multiples/premiums for this particular transaction are shown by an asterisk and highlighted by a box around the number. 24 27 POTENTIAL BUYER LIST Champion Enterprises Clayton Homes Fleetwood Enterprises Oakwood Homes American Homestar Belmont Homes Cavalier Homes Southern Energy Homes Skyline Corp. Centex Corp. Pulte Corp. Lennar Corp. Hovnanian Enterprises D.R. Horton 25 28 PROJECTION ASSUMPTIONS(a) THE COMPANY PROVIDED TWO SETS OF FIVE YEAR FINANCIAL PROJECTIONS AS OUTLINED IN "MANAGEMENT CASE #1" AND "MANAGEMENT CASE #2" MANAGEMENT CASE #1 - - There is no economic recession during the period (1997 - 2001) - - The New Mexico plant comes on stream without any delays - - The leasing segment's cash flow and utilization increase significantly in 1997 and build steadily thereafter - - Revenue growth and the EBITDA margin increases as highlighted below:
Actual Projected ---------------------------- ------------------------------------ 1993 1994 1995 1996 1997 1998 1999 2000 2001 - ---------------------------------------------------------------------------------------------------- Revenue (growth) N/A 61.8% 23.5% 14.4% 10.0% 24.8% 10.2% 4.7% 2.0% EBITDA (margin) 6.7% 8.7% 8.9% 10.7% 11.8% 11.3% 11.4% 11.6% 11.8% - ----------------------------------------------------------------------------------------------------
MANAGEMENT CASE #2 - - The New Mexico plant comes on stream without any delays - - Manufactured Housing's EBIT growth during the period FY1996-FY2001 is 5.2% - - Leasing's EBIT growth is 66% from FY1996 to FY1997 and continues to grow to $2.5 million in FY2001 - - A moderate to significant recession occurs in FY1997, which causes unit volumes in manufactured housing to decline. Growth in revenues in the manufactured housing division resumes at 8% thereafter. (a) Goldman, Sachs & Co. expresses no comment on the Company's projections. 26 29 DISCOUNTED CASH FLOW ANALYSIS - MANAGEMENT CASE #1
------------------------------------------------------ FISCAL YEARS 1997 1998 1999 2000 2001 ------------------------------------------------------ NET SALES $143,132 $178,671 $196,957 $206,236 $210,441 EBITDA (a) 16,839 20,224 22,461 23,997 24,901 INTEREST EXPENSE 1,373 1,168 782 282 (296) EBT 13,516 17,999 21,023 23,094 24,273 INCOME TAXES 5,406 7,199 8,409 9,237 9,709 NET INCOME 8,110 10,800 12,614 13,857 14,564 DEPRECIATION 1,877 2,045 1,976 2,021 2,122 CAPEX (7,100) (2,300) (2,300) (2,300) (2,300) WORKING CAPITAL (1,720) (2,488) (1,280) (650) (294) NET CASH FLOW $1,167 $8,057 $11,010 $12,928 $14,092 PERFORMANCE RATIOS SALES GROWTH 10.0% 24.8% 10.2% 4.7% 2.0% EBT MARGIN 9.4% 10.1% 10.7% 11.2% 11.5% EBITDA MARGIN 11.8% 11.3% 11.4% 11.6% 11.8% DEPRECIATION/SALES 1.3% 1.1% 1.0% 1.0% 1.0% TAX RATE 40.0% 40.0% 40.0% 40.0% 40.0% NPV AS OF DEC. 2, 1996 DISCOUNT RATE 16.0% 18.0% 20.0% NPV CASH FLOWS $27,897 $26,304 $24,837 EBITDA MULTIPLE: 7.5x NPV TERMINAL VALUE $88,918 $81,633 $75,054 - ----------------------------------------------------- TOTAL ENTERPRISE VALUE $116,814 $107,938 $99,891 NET DEBT 6,295 6,295 6,295 AGGREGATE EQUITY CONSIDERATION $110,519 $101,643 $93,596 EQUITY VALUE PER SHARE $31.04 $28.54 $26.28 - -----------------------------------------------------
(a) Defined as operating income plus depreciation and amortization. (b) Based on 3,561,093 fully diluted shares outstanding 27 30 DCF SENSITIVITY ANALYSIS - MANAGEMENT CASE #1
ENTERPRISE VALUE DISCOUNT RATE -------------------------------- 16.0% 18.0% 20.0% --------------- -------------------------------- 5.50x $93,103 $86,169 $79,876 EBITDA MULTIPLE 6.50 104,959 97,053 89,883 7.50 116,814 107,938 99,891 --------------- EQUITY VALUE PER SHARE DISCOUNT RATE -------------------------------- 16.0% 18.0% 20.0% --------------- -------------------------------- 5.50x $24.38 $22.43 $20.66 EBITDA MULTIPLE 6.50 27.71 25.49 23.47 7.50 31.04 28.54 26.28 ---------------
28 31 DISCOUNTED CASH FLOW ANALYSIS - MANAGEMENT CASE #2
------------------------------------------------------ FISCAL YEARS 1997 1998 1999 2000 2001 ------------------------------------------------------ NET SALES $109,588 $133,841 $147,248 $161,079 $174,378 EBITDA (a) 12,553 14,896 16,424 18,358 20,031 INTEREST EXPENSE 1,413 1,300 1,102 824 478 EBT 8,268 11,156 13,169 15,573 17,721 INCOME TAXES 3,307 4,462 5,267 6,229 7,069 NET INCOME 4,961 6,694 7,901 9,344 10,633 DEPRECIATION 1,877 2,045 1,976 2,021 2,122 CAPEX (7,100) (2,300) (2,300) (2,300) (2,300) WORKING CAPITAL 628 (1,698) (938) (968) (931) NET CASH FLOW $366 $4,741 $6,639 $8,097 $9,524 PERFORMANCE RATIOS SALES GROWTH (15.8)% 22.1% 10.0% 9.4% 8.3% EBT MARGIN 7.5% 8.3% 8.9% 9.7% 10.2% EBITDA MARGIN 11.5% 11.1% 11.2% 11.4% 11.5% DEPRECIATION/SALES 1.7% 1.5% 1.3% 1.3% 1.2% TAX RATE 40.0% 40.0% 40.0% 40.0% 39.9% NPV AS OF DEC. 2, 1996 DISCOUNT RATE 16.0% 18.0% 20.0% NPV CASH FLOWS $17,099 $16,095 $15,172 EBITDA MULTIPLE: 7.5X NPV TERMINAL VALUE $71,528 $65,668 $60,375 - ----------------------------------------------------- TOTAL ENTERPRISE VALUE $88,626 $81,763 $75,547 NET DEBT 6,295 6,295 6,295 AGGREGATE EQUITY CONSIDERATION $82,331 $75,468 $69,252 EQUITY VALUE PER SHARE $23.12 $21.19 $19.45 - -----------------------------------------------------
(a) Defined as operating income plus depreciation and amortization. (b) Based on 3,561,093 fully diluted shares outstanding 29 32 DCF SENSITIVITY ANALYSIS - MANAGEMENT CASE #2
ENTERPRISE VALUE DISCOUNT RATE ----------------------------- 16.0% 18.0% 20.0% ----- ----- ----- EBITDA MULTIPLE 5.50x $69,552 $64,252 $59,447 6.50 79,089 73,007 67,497 7.50 88,626 81,763 75,547 EQUITY VALUE PER SHARE DISCOUNT RATE ----------------------------- 16.0% 18.0% 20.0% ----- ----- ----- EBITDA MULTIPLE 5.50x $17.76 $16.27 $14.93 6.50 20.44 18.73 17.19 7.50 23.12 21.19 19.45
30 33 ANALYSIS AT ACQUISITION PRICE FOR THE COMPANY (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- ------------------------------------------------------------------ PRICE PER SHARE $26.75 - ------------------------------------------------------------------ Premium/(Discount) to Market (12/2/96) 18.9% Aggregate Equity Consideration $95,259 Net Debt Assumed 6,295 -------- Total Enterprise Value $101,554 Shares Outstanding 3,561 MULTIPLE OF SALES(a) FYE 1996 $130,105 0.78x Projected 1997 143,132 0.71 MULTIPLE OF EBITDA(a) FYE 1996 $13,925 7.3x Projected 1997 16,839 6.0 MULTIPLE OF EBIT(a) FYE 1996 $12,107 8.4x Projected 1997 14,889 6.8 MULTIPLE OF NET INCOME AFTER DISCONTINUED OPERATIONS(b) FYE 1996 $6,237 15.3x Projected 1997 8,110 11.7 MULTIPLE OF BOOK VALUE(b) $28,671 3.3x
(a) Multiple based on Total Enterprise Value. (b) Multiple based on Aggregate Equity Consideration. 31 34 SUMMARY MERGER ANALYSIS CENTEX ACQUIRES THE COMPANY ASSUMPTIONS
CENTEX Current Stock Price $35.88 PRICE PAID PER SHARE $26.75 LTM EPS $2.77 MULTIPLE OF LTM EPS PAID 15.3 x NTM EPS $3.32 MULTIPLE OF NTM EPS PAID 11.7 x LTM EPS Multiple 13.0 x NTM EPS Multiple 10.8 x CENTEX'S EPS Number of Shares Outstanding 28,622 POST ACQUISITION Current Equity Market Cap $1,026,803 ---------------- Current Dividend $0.20 LTM 1996 $2.79 NTM 1997 $3.41 THE COMPANY Current Stock Price $22.50 ACCRETION/(DILUTION) LTM EPS $1.84 TO CENTEX'S EPS NTM EPS $2.28 -------------------- LTM EPS Multiple 12.2 x LTM 1996 0.8% NTM EPS Multiple 9.9 x NTM 1997 2.7% Number of Fully Diluted Shares 3,561 Current Equity Market Cap $80,125 Current Dividend $0.00
NOTES (a) Share prices taken as of close on December 2, 1996. (b) Fully Diluted shares of the Company include those from convertible debt (128,125) and outstanding options (50,000). (c) All CTX values in analysis are taken from most recently filed public documents. (d) Effective tax rate is assumed to be 40.0% and cost of debt is assumed to be 6.85%. Merger analysis assumes Centex finances merger with all debt. (e) CTX Next twelve months earnings estimates are the sum of quarterly estimates. The next two quarters are First Call estimates; the following two quarters are grown at 7% (First Call consensus growth rate) from the comparable four quarters in the prior year. 32 35 PRESENT VALUE OF FUTURE CONSIDERATION LIKELY TO BE RECEIVED BY MAJORITY SHAREHOLDERS
PRICE PER SHARE TO BE RECEIVED IN PRESENT VALUE PER SHARE TO MAJORITY SHAREHOLDERS AT VARIOUS FUTURE BY MAJORITY HOLDERS FOR DISCOUNT RATES/PERCENTAGE CHANGE IN COMPANY PROJECTIONS REMAINING 22% OWNERSHIP INTEREST NEEDED TO ACHIEVE PRESENT VALUE OF $26.75 PER SHARE YEAR BASED ON COMPANY PROJECTIONS ------------------------------------------------------------ 14% 15% 16% 17% 18% 19% 20% - ----- ------------------------------- ------------------------------------------------------------ 3 $35.42 $23.91 $23.29 $22.69 $22.12 $21.56 $21.02 $20.50 11.9% 14.9% 17.9% 21.0% 24.1% 27.3% 30.5% 4 $45.40 $26.88 $25.95 $25.07 $24.23 $23.41 $22.64 $21.89 (0.5)% 3.1% 6.7% 10.4% 14.2% 18.2% 22.2% 5 $54.53 $28.32 $27.11 $25.96 $24.87 $23.84 $22.85 $21.91 (5.5)% (1.3)% 3.0% 7.6% 12.2% 17.1% 22.1%
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