2450 South Shore Boulevard
American Homestar Corporation is one of the nation's leading, vertically integrated manufactured housing companies. The company designs, produces, and retails manufactured homes. Through its subsidiaries, the firm provides installment financing, insurance, and transportation services.
American Homestar Corporation, one of the leading producers of site-assembled manufactured housing in the United States, was forced to declare Chapter 11 bankruptcy in early 2001, due to an industry-wide slump. Reorganization ensues, and the company hopes to resume its design, construction, and marketing of pre-constructed homes.
Manufactured homes are complete single-family housing units fabricated in sections, or 'floors.' Constructed in a factory and then trailered to a site of their owner's choosing, they offer amenities comparable with those of site-built homes. Although manufactured homes were once the focus of ridicule within the housing construction industry, in the 1990s they managed to shed their association with the tacky, disordered trailer parks of the 1960s and 1970s. In fact, the quality and design of manufactured (as opposed to mobile) homes improved to such an extent that the more upscale models have became almost indistinguishable from homes being constructed in newer, moderate-cost, single-family subdivisions in many parts of the country. The growing popularity of the manufactured housing trend came to an abrupt halt at the end of the 1990s, however. Whereas in the mid-1990s, manufactured homes made up the fastest-growing segment of home sales in the United States&mdashcounting for 33 percent of all single-family home sales in 1996--by the late 1990s the industry began to experience a sharp decline; sales at American Homestar dropped 24 percent between 1999 and 2000, and the company floundered.
Answering the Need for Affordable Housing Since 1971
Responding to the changing requirements of U.S. homebuyers, American Homestar Corporation was founded in 1971 as Mobile America Housing Corporation. Company founder and Texas native Finis Teeter, who had been selling manufactured housing since hiring on at Mobile Home Industries in 1969, decided to focus his area of operations in the southwest region. Establishing a 137,000-square-foot manufacturing facility in Fort Worth, Teeter began marketing middle-priced homes within the five-state area that has remained the company's core market. Teeter responded to the obviously unsatisfied need for affordable housing by setting up a retail network throughout the Southwest. The year 1971 proved to be a banner one for both Teeter and the manufactured housing industry as a whole as unit sales peaked throughout the nation.
The company reincorporated as American Homestar Corporation in 1983. Whereas the next few years would be rocky, indeed--the industry as a whole saw shipments of manufactured homes drop nationwide from 295,079 in 1983 to only 179,713 in 1991--Teeter and his company kept their footing until economic conditions across the nation began to stabilize.
It was not only a national recession, however, that affected the company. During the late 1980s, Texas experienced a dramatic decline in its own economic fortunes as the state's oil industry went through the 'bust' cycle after its earlier boom years. Within American Homestar's core market area, the number of manufactured home-makers shrank from 54 in 1984 to six by the early 1990s. The state began a financial comeback, however; along with other southern states, which have traditionally served as the manufactured home industry's strongest sales territory, Texas returned to its former glory, once again providing American Homestar with a lucrative market for its product.
Early 1990s: Developing Manufacturing and Sales Networks and Achieving Vertical Integration
By 1994, despite the setbacks caused by the local Texas economy, American Homestar ran three manufacturing plants located throughout the Dallas/Fort Worth area. Under the umbrella of National Housing Systems, Inc., the company retailed its homes in Arkansas, Colorado, Kansas, Louisiana, Missouri, New Mexico, Oklahoma, and Texas via 34 company-owned retail centers. These company-owned centers were supplemented by 103 independent retailers in the same core market area.
Due to the high cost of materials and storage, as well as the cyclical nature of the construction industry, factory-built homes were usually not manufactured until an order had been received, either from an independent retailer or one of American Homestar's own sales centers. The average rate of production in the company was 23 floors per day; the decline in orders experienced by the slump in housing demand over the winter months was balanced by a corresponding increase in production during warmer weather. Sixty percent of total sales was generated by company-owned retailers, with the remainder written by its network of independents. New company-manufactured homes--medium- to upper-priced houses that vary in features and design--comprised more than 60 percent of the homes sold by American Homestar, which also sold used homes and homes from other manufacturers. In the early 1990s, company goals continued to focus on increasing this percentage to 80 percent through enlargement of American Homestar's own manufacturing facilities.
The implementation of a management strategy known as vertical integration--the ability to design, manufacture, market, deliver, and finance its product--was the key to the success of several competitors in the manufactured home industry, notably the Knoxville, Tennessee-based Clayton Homes. Teeter also recognized the benefits of this means of developing structural efficiency early on, and he guided American Homestar in the direction of vertical integration. In light of Teeter's success in this area, analysts praised American Homestar as possessing one of the best-managed corporate organizations in the manufactured housing industry.
The company obtained a controlling interest in the newly formed Roadmaster Transport Company in 1992 as its first step toward vertical integration. Because of the specialized trucking needs of the manufactured home industry, Roadmaster was organized as a means of providing transit from factory to homesite. Deriving only a small percentage of its revenue from American Homestar--26 percent in 1996--Roadmaster generated most of its income by servicing other home manufacturers within its transit area. Under efficient management, it had become one of the largest transporters of manufactured homes in the southwest region.
1992: Merger with Oak Creek Homes
The year 1992 was significant, not only for the company's diversification into the transport business, but also for its timely merger with another home manufacturer. Recognizing the increased potential for profits with an increase in production and retail size, CEO Teeter formed a joint venture with Oak Creek Homes, a major supplier of homes to American Homestar retailers. Under the joint name of American Homestar, Oak Creek CEO and primary shareholder Laurence A. Dawson, Jr., worked with Teeter to open two new manufacturing plants to capture the still-increasing demand for manufactured homes. The Lancaster manufacturing facility was opened in December 1992 to produce lower-priced homes; upper medium- and higher-priced homes would be constructed at the 94,000-square-foot Burleson plant beginning in May 1993. Oak Creek Homes was acquired by American Homestar in August 1993. Under the acquisition, all corporate operations were combined; Dawson was named co-CEO and director alongside Chairman and CEO Teeter.
Providing its customers with adequate long-term financing for home purchases also contributed to American Homestar's goal of vertical integration. Through its 50 percent ownership of 21st Century Mortgage, which was formed in early 1996, the company reaped the profits of $47 million in home mortgages by the end of its first fiscal year. Approximately half of the homes purchased through American Homestar retailers would eventually be financed by 21st Century. Through its ownership of Western Insurance Agency and Lifestar Reinsurance Ltd., the company was able to service its customers' property/casualty and credit life insurance needs and profit from yet another financial transaction on the way to owning a home.
Going Public in 1994
Company management's efforts toward vertical integration paid off. Although sales in 1992 had contributed only $27 million to revenues of $28.7 million, by 1994 they had reached $109 million, an increase of more than 400 percent. Such rapid growth enabled American Homestar to consider an expansion of its sales territory through the acquisition of smaller manufactured home producers. Expansion into these new markets, however, would necessitate an influx of capital. Accordingly, in July 1994 the company went public, offering two million shares on the New York over-the-counter market. While Teeter and Dawson retained 45 percent of the company stock, the sale of the remaining 1.1 million shares generated sufficient revenues to continue the implementation of their acquisition plans.
Formulating reorganization strategies was only a means to an end. American Homestar approached the year 2000 with several strategic goals, which included opening new retail centers, expanding its current network of independent retailers and strengthening retailer loyalties to its product, and further expanding its manufacturing capacity. The company also focused on maximizing the profit opportunities inherent in its vertical structure through earning manufacturing, retailing, and financial service profits on every home sold. Management felt that the company's continued policy of aggressive acquisitions would ensure ever-increasing market opportunities for both its mortgage and insurance sectors.
By the mid-1990s, American Homestar was reporting annual average growth rates of between 15 and 18 percent, with 1995 revenues of $187 million and sales in its core market area cresting between 35 and 45 percent. Sales of new homes for 1995 were reported at 3,127 units, evenly distributed between single- and multifloored home models. Branching out into its first retail sales location in the state of Louisiana, the company worked toward its goal of establishing 40 new retail centers by 1997. The September 1995 investment of $2.5 million in 21st Century Life, a venture with partners Vanderbilt Mortgage & Finance and Clayton Homes, reaped $22,000 in net income by the following year.
Reaping Rewards Through Aggressive Expansion in the Mid-1990s
In 1996, American Homestar more than doubled the size of its manufacturing capacity through the acquisition of three firms: Guerdon Homes, Inc., which sells and produces manufactured homes within a 13-state region; Henderson, North Carolina's Heartland Homes, Inc.; and the 15-member Manu-Fac, Inc., retailer network, also located in North Carolina. This expansion made the company a major industry presence in 24 states through the addition of 215 new independent retailers and five additional manufacturing locations to its operations. Guerdon and Heartland, both manufacturers of upscale double-section homes, were predicted to especially enhance the company's overall sales figures. The trend within the manufactured home industry had been toward such larger, multisection homes, which accounted for almost half of the industry's 1996 sales. These more upscale homes--sometimes boasting three bedrooms, luxury amenities, or innovative architectural elements--had become an increasingly attractive alternative to buyers considering more expensive site-built homes. With American Homestar's traditional mid-priced homes serving both ends of the country's new homebuyer demographic profile (first-time homebuyers and retirees), the addition of multisection homes was seen to be an effective way to expand company market share.
Reflecting an industrywide trend toward consolidation, the acquisitions of Guerdon and Heartland made American Homestar an industry leader, not only in its core southwest and south central regions, but in the Pacific Northwest, Rocky Mountain area, and the southeastern United States as well. By the second quarter of fiscal 1997, with the multistage acquisition of Guerdon Homes completed, the company had diversified its geographical base to the point where it could boast 48 company-owned retail centers and 300 independent dealerships servicing customers in 24 states, with eight manufacturing plants at their disposal. Through this dramatic increase in its sales base, coupled with a 100 percent increase in its manufacturing capabilities, American Homestar seemed poised on the brink of rapid financial growth.
In both 1996 and 1997, American Homestar announced a five-for-four split of its stock, increasing its common shares outstanding and generating new funds for the continued implementation of its plan for aggressive expansion. Praising the company's stock--one of the lowest-valued stocks in the industry&mdash one of the best picks of 1997, industry analysts expected the company's earnings to rise at an annual rate of 20 percent into the next century. Company goals for fiscal 1997, which included the addition of ten new retail facilities, reflected such an optimistic outlook. By the first quarter of fiscal 1997, three new retail outlets already had been established; by the second quarter American Homestar had reported record gains as revenues rose 76 percent from 1996 levels to $89.3 million.
According to the industry's Manufactured Housing Institute, the 370,000 manufactured homes shipped in 1996--a 9 percent increase over the previous year and a 37 percent increase over the previous decade--generated $14 billion in sales for the industry. American Homestar's piece of this growing pie was $208 million, generated through the manufacture and sale of 3,593 new homes. Housing analysts noted, however, that fluctuations in the interest rate, as well as excess inventories caused by slow orders, would begin to affect the manufactured home industry as it began its process of maturation.
Nevertheless, American Homestar continued to introduce new manufactured home models in 1997, including the Celebration Model 487 and the Galaxy Model 694. By 1998, the company's revenues had grown to $514 million, an increase of 26 percent over the previous year. The firm operated 86 retail centers and served 40 franchisees and 300 independent retailers in 28 states.
Continuing with its acquisition strategy, American Homestar purchased R-Anell Custom Homes Inc.--known for its manufactured and modular homes--in January 1999. Included in the deal were Gold Medal Homes Inc. and Gold Medal Homes of North Carolina Inc. The company also began a joint venture with HomeMax, Inc., a subsidiary of Zaring National Corporation. HomeMax operated 12 retail sales centers, called model home villages, in North and South Carolina and in Kentucky. As part of the venture, American Homestar homes would be sold in the model home villages.
Industry Decline in the New Millennium
Although the company had pursued an aggressive acquisition strategy, it entered the new millennium with an uncertain future. Housing analysts' predictions rang true as the manufactured housing industry, which had grown quickly in the 1990s, began to experience sharp declines in demand. American Homestar was forced to take action. Production in its Alabama and North Carolina plants was consolidated in an effort to improve profits. At the same time, the company sold its interest in 21st Century Mortgage and instead began a joint venture with the firm. The new entity, Homestar 21 LLC, operated as a loan originator for American Homestar customers, franchisees, and dealers.
Revenue for fiscal 2000 dropped to $574 million from $654 million recorded in the previous year. In August 2000, Dawson, Jr., resigned as CEO, president, and director of the company. Teeter remained chairman but relinquished his operating responsibilities. The company continued to consolidate operations as means of controlling costs. The decline in the industry continued with nearly 40,000 unsold mobile homes left on dealer lots in 2000. Many independent dealers were forced to go out of business, and American Homestar was left having to repurchase the unsold homes. In December 2000, retail sales in the industry declined by 32 percent over the previous year and shipments fell by 47.1 percent.
By early 2001, almost 80 manufacturing housing factories had been shut down throughout the industry. Despite the company's efforts at cutting costs, American Homestar, was forced to declare Chapter 11 bankruptcy in January. The firm, stating that the decline was the worst it had seen in two decades, was left with few options and felt that Chapter 11 was the best solution. Craig Reynolds, American Homestar's executive vice-president and chief financial officer, stated in a company press release, 'If we're going to have the opportunity to reorganize at all, we have to resort to this measure; otherwise we would just sit and run right out of cash.' At the time of the filing, the company had $363 million in assets and nearly $280 million in debt. Management planned to file a reorganization plan to restructure operations in early summer 2001 and remained optimistic that the industry would bounce back, as it had in the past.
Principal Subsidiaries: First Value Homes Inc.; R-Anell Custom Homes Inc.; Associated Retailers Group Inc.; Nationwide Housing Systems; Oak Creek Homes Inc.; Roadmaster Transport Company.
Principal Competitors: Champion Enterprises Inc.; Fleetwood Enterprises Inc.; Oakwood Homes Corporation.