<PAGE>   1
                                    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 January 1, 1999
                                       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
-------------------------------                            ------------------- 
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                             Identification No.)


Highway 41 North, P.O. BOX 390, Addison, Alabama                 35540
------------------------------------------------               ----------
   (Address of principal executive offices)                    (Zip Code)

       Registrant's telephone number, including area code: (256) 747-8589
                                                           --------------

        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 23, 1999, was $22,835,019.37. 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 June 1, 1999 Annual Meeting of 
   Stockholders                                             III     10,11,12,13


<PAGE>   2

                                     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 four component supply divisions. The
Company produces manufactured homes sold primarily in the southeastern and
southcentral United States. The Company operates nine home manufacturing
facilities (seven in Alabama, one in Texas, and one in North Carolina) to
produce homes sold in 25 states. The Company's homes are currently marketed
under five brand names by 399 independent dealers at 565 independent dealer
locations and 33 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 2,417
square feet and sell at retail prices ranging from $15,900 to $108,000,
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.

         Through a finance joint venture, the Company also provides home buyers
with a source of financing for homes sold by the Company.

MANUFACTURED HOMES

         The Company produces a variety of single- and multi-section homes under
five 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 five divisions of
the Company at which its homes were manufactured in 1998 and certain
characteristics of the homes are as follows:

<TABLE>
<CAPTION>
                                                                            Retail
Division                   Type                         Square Feet         Price Range
----------------------------------------------------------------------------------------------
<S>                        <C>                          <C>                 <C>   
Southern Energy            Multi-section                1,312 - 2,417       $33,800 - $108,000
Southern Life/style        Single- and multi-section      640 - 2,432        16,000 -   59,000
Southern Homes             Single- and multi-section      672 - 2,016        15,900 -   36,800
Southern Energy Homes
 of Texas                  Single- and multi-section    1,088 - 2,128        22,000 -   57,500
Southern Energy Homes
 of North Carolina         Single- and multi-section      765 - 2,128        19,400 -   61,700
</TABLE>

         For the fiscal year ended January 1, 1999, the net revenues contributed
by each of the Company's five home manufacturing divisions were as follows:
Southern Energy - $49 million; Southern Life/Style - $53 million; Southern Homes
- $98 million; Southern Energy Homes of Texas - $26 million; and Southern Energy
Homes of North Carolina - $19 million.

<PAGE>   3

         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 doing business 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. At January 1, 1999, the Company had 33
retail sales centers; 10 in Alabama, nine in South Carolina, seven in Kentucky,
two in Tennessee, two in Georgia, two in West Virginia and one in Mississippi.
Each of the 33 sales centers maintains a separate sales force. For the fiscal
year ended January 1, 1999, 25% of the Company's net revenues were attributable
to sales at the Company's own retail centers.

COMPONENT SUPPLY

         The Company currently operates four 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. Unique Dinettes 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
January 1, 1999, 4% of the Company's net revenues were attributable to sales of
these ancillary products to third-parties.

RETAIL FINANCING

         Home buyers normally secure financing from third-party lenders such as
banks or independent finance companies. While the Company believes that consumer
financing has generally become more available in the manufactured housing
industry in recent years, the availability and cost of financing is important to
the Company's sales. 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 during the period January 1996 through
February 1997 consumer loans for homes manufactured by the Company. In February
1997, the Company formed a joint venture with 21st Century Mortgage Corporation
("21st Century"). The joint venture, Wenco 21, continues to offer, through 21st
Century, 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 January 1, 1999, Wenco
Finance had $11.3 million of installment contract receivables outstanding as
compared with $9.8 million at January 2, 1998. 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 five operating
divisions using assembly line techniques at nine facilities, four of which are
located in Addison, Alabama, two of which are located in Double Springs,
Alabama, one of which is located in Lynn, Alabama, one of which is located in
Fort Worth, Texas, and one of which is located in Albemarle, North Carolina.

         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 370 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
January 1, 1999, the


<PAGE>   4

Company produced an average of 262 floor sections per week. This represented a
5% decrease in floor section production from an average of 275 floor sections
per week in the fiscal year ended January 2, 1998. In the fiscal year ended
January 3, 1997, the Company produced an average of 315 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:

<TABLE>
<CAPTION>
                                        YEAR ENDED                          
                        ------------------------------------------ 
                        January 1,      January 2,      January 1,
                              1999            1998            1997
                        ----------      ----------      ----------    
<S>                          <C>             <C>            <C>   
Homes                        8,891           9,165          10,940
Floor sections              13,621          14,288          16,697
Home manufacturing
  facilities(1)                  9               9              10
</TABLE>

(1) Production commenced at the Company's eleventh home manufacturing facility
in February 1997, the Company closed one of its Lynn, Alabama facilities in
April 1997 and closed its Pennsylvania facility in September 1997.

         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
incentive compensation system. The Company believes that these compensation
systems help to focus efforts on curtailing waste and inefficiencies in the
production process 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 two 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 such increases in costs can not always be reflected immediately
in the Company's prices, the Company in the past has been able to pass along a
significant portion of cost increases in its current prices.

         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, 1999 was $1.3 million as compared with $3.2 million at March 1,
1998. 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 January 1, 1999, the Company sold manufactured homes through
approximately 399 independent dealers at approximately 565 independent dealer
locations and through 33 company-owned retail centers in 25 states principally
in the southeastern and southcentral United States. The Company believes that
the quality of its independent dealer network has been important to the
Company's performance.

         Each of the Company's five home manufacturing divisions maintains a
separate sales force. At January 1, 1999, a total of 41 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.

<PAGE>   5

         The Company believes the close working relationship between its
division management and the independent dealers they service has been an
important factor in the Company's growth. 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 January 1, 1999, the Company's largest dealer accounted for
2.9% of net revenues and the ten largest dealers accounted for 16.1% of net
revenues. In the fiscal year ended January 2, 1998, the Company's largest dealer
accounted for 2.5% of net revenues, and the Company's ten largest dealers
accounted for 18.0% of net revenues. In the fiscal year ended January 3, 1997,
the Company's largest dealer accounted for 5.4% of net revenues and the
Company's ten largest dealers accounted for 25.7% of net revenues.

         The Company began its retail operations in November 1996 by acquiring a
group of retail companies doing business in Alabama and Mississippi. Since then,
the Company expanded its retail operations by acquiring several other retail
companies. At January 1, 1999, the Company had 33 retail sales centers; 10 in
Alabama, nine in South Carolina, seven in Kentucky, two in Tennessee, two in
Georgia, two in West Virginia and one in Mississippi. Each of the 33 sales
centers maintains a separate sales force.

         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.

         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.

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. At
January 1, 1999, the Company's contingent repurchase liability under floor plan
financing arrangements through independent dealers was approximately $94
million. While homes that have been repurchased by the Company under floor plan
financing arrangements are usually sold to other dealers and losses to date
under these arrangements have been insignificant, 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. No dealer accounted for more than 5.4% 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. While the Company does not have access to financial
information regarding its independent dealers, it is not aware that any
independent dealer is experiencing financial difficulties. The Company also
finances substantially all of its retail inventory through floor plan
arrangements and a line of credit. Such borrowings totaled approximately $20.6
million at January 1, 1999. 

<PAGE>   6

COMPETITION

         The manufactured housing industry is highly competitive at both the
manufacturing and retail levels, with competition based upon 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. 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 believes consumer financing has generally become
more available in the manufactured housing industry in recent years, and
although the Company has recently 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 in recent
years become more difficult to meet.

         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.

         On March 1, 1999 the Company, without admitting any liability, entered
into a settlement with HUD that requires the Company to correct construction and
safety violations in homes manufactured at the North Carolina manufacturing
facility. In addition, the settlement requires the Company to inspect 600
additional homes for possible violations. The Company has agreed to a one-year
warranty extension of certain homes. HUD claimed that the Company failed to
comply with the consumer notification and defect correction requirements of the
1974 Act. The Company has been assessed a civil penalty by HUD of up to $300,000
in connection with the settlement; however, this penalty can be reduced by HUD
depending on Company actions.

         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 home's 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.

<PAGE>   7

         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 new 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.

         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.

RECENT ACQUISITIONS

         In February 1998, the Company acquired substantially all of the assets
of a manufactured housing retailer in Georgia at a purchase price of
approximately $779,000.

         In April 1998, the Company acquired substantially all of the assets of 
a manufactured housing retailer in Kentucky and West Virginia at a purchase
price of approximately $5.1 million. In May 1998, the Company acquired
substantially all of the assets of a manufactured housing retailer in South
Carolina at a purchase price of approximately $946,000. In July 1998, the
Company acquired substantially all the assets of a manufactured housing retailer
in Kentucky at a purchase price of approximately $460,000. Also in July 1998,
the Company acquired property in Tennessee at a purchase price of $220,000. In
September 1998, the Company acquired substantially all the assets of two
manufactured housing retailers one in Tennessee and one in Georgia at a purchase
price of approximately $1.3 million. In the foregoing acquisitions, the Company
assumed liabilities of $1.5 million. See Note 3 of Notes to Consolidated
Financial Statements.

         On December 3, 1997, the Company acquired substantially all of the
assets and liabilities of A & G, a manufactured home retailer in South Carolina.
The Company paid $1.4 million in cash and issued 94,115 shares of the Company's
common stock (approximate market value on December 3, 1997 was $869,000).

         On November 21, 1996, the Company acquired BR Holding Corp., a company
which operates a group of companies engaged in the retail sale of manufactured
homes, and is doing business as Blue Ribbon Homes ("BR Holding"). BR Holding
also operates an insurance agency which provides homeowner insurance for
manufactured homes. The Company paid $1,075,000 in cash and issued 332,814
shares of the Company's common stock (approximate market value on November 21,
1996 of $4,532,000). The acquisition was accounted for under the purchase method
of accounting; thus the Company's financial statements as of January 3, 1997 and
for the year then ended reflect the operations of BR Holding from the date of
acquisition. The total purchase price exceeded the fair value of net assets
acquired by $5,480,000, which amount is being amortized over 30 years as
goodwill. In addition, the Company entered into four year non-compete agreements
with the former stockholders of BR Holding for an aggregate amount of $50,000,
which amount is included in the cash purchase price noted above. The stock
purchase agreement required the Company to make additional payments to the
seller contingent on future earnings performance of BR Holding. Any additional
payments were to be made 20% in cash and 80% in shares of the Company's common
stock and will be accounted for as goodwill and amortized over the remaining
recovery period of the goodwill. In May 1997, an additional payment totaling
approximately $197,000, 49,000 in cash and 14,256 shares of the Company's common
stock (approximate market value of $148,000), was made for earnings targets
achieved through December 31, 1996. At January 1, 1999, there was no payment
obligation.

EMPLOYEES

         As of January 1, 1999, the Company employed 2,346 full-time employees
involved in the following functional areas: manufacturing, 1,704; sales, 154;
field service, 160; administration and clerical, 209; drivers, 56; and
management, 63. 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.

<PAGE>   8

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 56) is the founder of the Company and has 
been the Company's President, Chief Executive Officer and a Director since the
Company's incorporation in 1982. 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.

         Johnny R. Long (age 52) has been a Vice President of the Company
primarily responsible for purchasing and a Director since the Company's
incorporation in 1982. From 1976 to 1982, Mr. Long served as Purchasing Agent
for Shiloh Homes, a division of Winston Industries. Mr. Long was Purchasing
Agent for Bendix Homes from 1974 to 1976, for Commodore Homes from 1972 to 1974,
and for Chevelle Homes from 1966 to 1972.

         Keith W. Brown (age 42) 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.

         Keith O. Holdbrooks (age 38) was elected as the Company's Chief
Operating Officer in August 1996 by the Company's Board of Directors and became
a Director in 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.

ITEM  2. PROPERTIES

         The Company's manufactured home segment currently operates nine home
manufacturing facilities (seven in Alabama, and one in each of Texas and North
Carolina) and four component supply facilities (all in Alabama). The facilities
used by the Company's manufactured home segment are as follows:

<TABLE>
<CAPTION>
                                Building                      Leased or
Unit                            Location       Square Feet      Owned  
---------------------      ------------------  -----------    ---------
<S>                        <C>                     <C>           <C> 
Manufacturing
  Southern Energy
  Plant #1                 Addison, AL            72,000        Owned
  Plant #2                 Addison, AL            55,000        Owned
Southern Life/style
  Plant #1                 Addison, AL            62,500        Owned
  Plant #2                 Addison, AL            54,000        Leased
Southern Homes
  Plant #1                 Double Springs, AL     60,000        Owned
  Plant #2                 Double Springs, AL     52,000        Owned
  Plant #4                 Lynn, AL               96,000        Owned
Southern Energy Homes
   of Texas                Fort Worth, TX         98,300        Owned
Southern Energy Homes
   of North Carolina       Albemarle, NC          77,000        Owned
Component Supply
   Classic Panel           Hartselle, AL          24,000        Owned
   Wind-Mar Supply         Addison, AL            22,000        Owned
   Trimmasters             Haleyville, AL         50,000        Leased
   Unique Dinettes         Haleyville, AL         50,000        Leased
</TABLE>

         The Company currently operates 33 retail sales centers, 10 of which are
in Alabama, nine of which are in South Carolina, seven in Kentucky, two in
Tennessee, two in Georgia, two in West Virginia and one in Mississippi. Each of
the lots are currently leased and such lease terms range from one to five years.

<PAGE>   9

         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 entered into a contract with Gesellschoft fur Bauen Und
Wohnen Hannover MbH ("GBH"), a German housing authority, which provided for the
construction of two modular home projects, though GBH chose a local company to
complete the second project. GBH originally indicated that the first project was
completed satisfactorily, but subsequently asserted warranty claims against the
Company. GBH also claims the Company is responsible for its additional costs on
the second project. The Company claims GBH is withholding monies due it from the
first project and disputes its liability for the warranty claims on the first
project and the extra costs on the second project. GBH attempted on March 26,
1997 to draw on a Company letter of credit, but an Alabama state court issued a
temporary restraining order enjoining payment on the letter of credit. In
January, 1998, the Alabama Supreme Court, without ruling on the merits of
whether GBH was committing fraud by drawing on the letter of credit, issued an
opinion allowing GBH to draw on the letter of credit. GBH promptly drew on the
Company's letter of credit in the amount of $580,000. There has not been any
discovery or decision on the merits of the underlying transaction and whether
the Company has a valid claim to recover the money paid under the letter of
credit. After payment of the letter of credit, other than potential warranty
claims, management believes there is no other material exposure to the Company
with regard to GBH. At this time there is no activity of any kind by GBH to
assert any claims against the Company.

On March 1, 1999 the Company, without admitting any liability, entered into a
settlement with HUD that requires the Company to correct construction and safety
violations in homes manufactured at the North Carolina manufacturing facility.
In addition, the settlement requires the Company to inspect 600 additional homes
for possible violations. The Company has agreed to a one-year warranty extension
of certain homes. HUD claimed that the Company failed to comply with the
consumer notification and defect correction requirements of the 1974 Act. The
Company has been assessed a civil penalty by HUD of up to $300,000 in connection
with the settlement; however, this penalty can be reduced by HUD depending on
Company actions.

The Company has been named, along with several other manufactured housing
companies, as a defendant in a class action lawsuit filed in Kentucky in
September 1998, claiming wrongful conduct, fraudulent misrepresentation and that
manufactured housing units are unsafe and/or dangerous for residential use. The
amount of the damages has not been specified. The Company believes the claims
are without merit and plans to vigorously defend itself against these claims.
However, the outcome of the litigation can not be predicted and such outcome
could have a material adverse effect on the Company.

The Company is a party to various other legal proceedings incidental to its
business. The majority of these legal proceedings relate to employment matters
or product warranty liability claims for which management believes adequate
reserves are maintained. 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 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 1998.


<PAGE>   10
                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


Record Holders
         As of March 23, 1999, there were 96 record holders. This number does 
not include those stockholders holding stock in "nominee" or "street" name.

Stock Price Performance
         The Company's Common Stock has been publicly traded on the Nasdaq Stock
Market National Market System since March 12, 1993. The original price per share
was $6.93.

<TABLE>
<CAPTION>
                         1998                   1997
                    Bid Price Range        Bid Price Range
                   ----------------      -----------------     
                    High       Low        High        Low
                   ------     -----      ------      -----
<S>                <C>        <C>        <C>         <C>  
First Quarter      $13.38     $8.00      $13.88      $9.75
Second Quarter      13.00      9.13       10.88       7.38
Third Quarter       11.25      6.38       10.75       8.75
Fourth Quarter       7.25      5.38       10.75       8.00
</TABLE>


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)

<TABLE>
<CAPTION>
                                                             Year Ended                       
                              ---------------------------------------------------------------------------
                              January 1,      January 2,     January 3,    December 29,      December 30,
Operating Data                      1999            1998           1997            1995              1994
---------------------------   ----------      ----------     ----------    ------------      ------------
<S>                            <C>             <C>            <C>             <C>               <C>      
Net revenues                   $ 306,964       $ 296,809      $ 306,844       $ 241,268         $ 188,750
Gross profit                      55,294          46,089         43,647          31,125            24,763
Selling, general
and administrative                35,099          23,494         17,634          13,272            10,633
Provision for credit
  losses                             300             187          1,177              --                --
Start-up costs                       739              --             --              --                --
Amortization of intangibles          792             853            517             422               322
Non-recurring
charge(1) (2)                        934           2,146             --               -                --
Operating income                  17,430          19,409         24,319          17,431            13,808
Interest expense                   2,392           1,412            131             146               237
Interest income                      854             470            593             811               392
Provision for income
  taxes                            6,089           7,092          9,535           6,854             5,139
Cummulative effective of
  accounting change (3)              507              --             --              --                --
Net income                         9,296          11,375         15,246          11,242             8,824
Net income per share:
  Basic                            $0.69           $0.76          $1.01           $0.79             $0.62
  Diluted                          $0.68           $0.75          $1.00           $0.78             $0.62
Weighted average 
shares outstanding:
  Basic                       13,440,607      15,002,006     15,122,578      14,300,466        14,161,135
  Diluted                     13,647,216      15,129,530     15,260,484      14,349,197        14,328,361
</TABLE>


<PAGE>   11

<TABLE>
<CAPTION>
                          January 1,   January 2,   January 3,   December 29,   December 30,
Balance Sheet Data              1999         1998         1997           1995           1994
------------------        ----------   ----------   ----------   ------------   ------------
<S>                        <C>          <C>          <C>             <C>            <C>     
Total assets               $ 122,768    $ 123,253    $ 112,658       $ 75,899       $ 54,347
Long-term  debt                3,569        4,720           --              6            596
Stockholders' equity          73,449       79,767       77,377         57,242         38,559
</TABLE>

(1)  During the fourth quarter of 1998, the Company recorded an additional
     charge of $934,000 ($575,000 net of tax) due to additional warranty,
     workers' compensation, and other costs incurred related to the closing of
     its Pennsylvania facility in 1997.

(2)  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.

(3)  During the fourth quarter of 1998, the Company recorded a charge of
     $825,000 ($507,000 net of tax) 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.

(4)  Certain prior period amounts have been reclassified to conform to the 1998
     presentation. There was no effect on net income or stockholder's equity as
     a result of these reclassifications.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 
        OF OPERATIONS

RESULTS OF OPERATIONS

Year Ended January 1, 1999 as Compared with Year Ended January 2, 1998

Net Revenues

Total net revenues (gross revenues less volume discounts, returns, and
allowances) and finance revenue for the year ended January 1, 1999 were $307.0
million, which represented an increase of 3.4% over the prior fiscal year.

Net revenues of the manufactured home segment were $244.7 million (including
intersegment revenues of $27.5 million) for the year ended January 1, 1999 as
compared with $252.0 million (including intersegment revenues of $17.9 million)
for the prior year period, a decrease of $7.3 million, or 2.9%. The decline in
sales to dealers was primarily attributable to a decline in the number of homes
shipped. Total homes shipped in the year ended January 1, 1999 was 8,891, down
3% 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 1998 was $27,522, as compared with $27,501 in 1997.

Net revenues from the retail sales segment were $76.3 million for the year ended
January 1, 1999 as compared with $47.5 million for the prior year period, an
increase of $28.8 million, or 60.6%. The increase in retail sales was
attributable to the expansion of retail centers from 20 in 1997 to 33 during the
fiscal year ended January 1, 1999. Total homes (new and used) sold by the retail
segment in the year ended January 1, 1999 was 2,176, up 68.4% from the number of
homes shipped in the prior year period. The average retail price per new home in
1998 was $44,019, as compared with $41,772 in 1998, an increase of 5%.

Net revenues from the supply segment were $57.3 million (including intersegment
revenues of $44.9 million) for the year ended January 1, 1999 as compared with
$59.0 million (including intersegment revenues of $45.9 million) for the prior
year period, a decline of $1.7 million, or 2.9%. The decline in supply sales was
attributable to the decline in the manufactured home segment.

Revenues from the Company's retail financing activities were $1.1 million for
the year ended January 1, 1999, as compared with $2.2 million for the prior year
period. This decline was attributable to the decline 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. In February 1997, the Company formed a joint venture with 21st
Century Mortgage Corporation ("21st Century"). The joint venture, Wenco 21, will
continue to offer consumer financing for homes manufactured by the Company as
well as for other homes sold through its retail centers and independent dealers.
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.

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 January 1, 1999
was $55.3 million, or 18.0% of net revenues, as compared with $46.1 million, or
15.5% of net revenues, in the 


<PAGE>   12

prior year period. This increase in the gross profit percentage was attributable
primarily to increased sales from the Company's retail segment, which have a
higher gross margin than sales to independent dealers.

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 $35.1 million, or 11.4% of net
revenues, during the year ended January 1, 1999, as compared with $23.5 million,
or 7.9% 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 selling expenses generally
associated with the Company's retail operation, general salary increases and the
addition of new employees who were hired in order to staff retail operations.

Operating Income

See Footnote 10 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 January 1, 1999 was $300,000 as
compared with $187,000 for the year ended January 2, 1998. 

Non-Recurring Charge

During 1998, the Company recorded an additional charge of $934,000 due to
additional warranty, workers' compensation, and other costs incurred related to
the closing of its Pennsylvania facility in 1997. During fiscal years ended
January 2, 1998 and January 3, 1997, this facility generated 1.0% and 3.3%,
respectively, of the total revenues of the Company.

Interest Expense

Interest expense for the year ended January 1, 1999 was $2.4 million as compared
with $1.4 million for the year ended January 2, 1998. The increase in interest
expense in the current year was a result of increased notes payable associated
with the floor plan financing of the Company's retail inventory.
 .
Interest Income

Interest income for the year ended January 1, 1999 was $854,000 as compared with
$470,000 for the year ended January 2, 1998. The increase in interest income
reflects higher average cash and cash equivalent balances during the year ended
January 1, 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
expense for the year ended January 1, 1999 was $6.1 million, or an effective tax
rate of 38.3%, compared with $7.1 million, or an effective tax rate of 38.4%,
for the year ended January 2, 1998. The decline in income tax expense is a
result of lower income in 1998.

Year Ended January 2, 1998 as Compared with Year Ended January 3, 1997

Net Revenues

Total net revenues (gross revenues less volume discounts, returns, and
allowances) and finance revenue for the year ended January 2, 1998 were $296.8
million, which represented a decrease of 3.3% over the prior fiscal year.

Net revenues of the manufactured home segment were $252.0 million (including
intersegment revenues of $17.9 million) for the year ended January 2, 1998 as
compared with $289.6 million (including intersegment revenues of $0.1 million)
for the prior year period, a decrease of $37.6 million, or 13.0%. The decline in
sales to dealers was attributable to a decline in the number of homes shipped,
which was partially offset by an increase in the average wholesale price per
home shipped Total homes shipped in the year ended January 2, 1998 were 9,165,
down 16.2% 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 1997 was $27,500, as compared with
$26,500 in 1996, an increase of 3.8%.


<PAGE>   13

During the fourth quarter of 1996 the Company entered into the retail sector of
the industry through the acquisition of BR Holding Corp. and a group of retail
companies doing business as Blue Ribbon Homes.

Net revenues from the retail sales segment were $47.5 million for the year ended
January 2, 1998 as compared with $4.0 million for the prior year period, an
increase of $43.5 million, or 1,087%. The increase in retail sales was
attributable to the expansion of retail centers from 6 in 1996 to 20 during the
fiscal year ended January 2, 1998. Total homes (new and used) sold by the retail
segment in the year ended January 2, 1998 was 1,292, up 1,154% from the number
of homes shipped in the prior year period. The average retail price per new home
in 1997 was $41,772, as compared with $39,527 in 1996, an increase of 5.7%.

Net revenues from the supply segment were $59.0 million (including intersegment
revenues of $45.9 million) for the year ended January 2, 1998 as compared with
$57.2 million (including intersegment revenues of $45.9 million) for the prior
year period, an increase of $1.8 million , or 3.1%. The increase in supply sales
was attributable to an increase in sales to outside customers partially offset
by a decline in supply sales to the manufactured home segment.

Revenues from the Company's retail financing activities were $2.2 million for
the year ended January 2, 1998, as compared with $2.0 million for the prior year
period. This increase was attributable to the increased lending activity by
Wenco Finance. 

Gross Profit

Gross profit for the year ended January 2, 1998 was $46.1 million, or 15.5% of
net revenues, as compared with $43.6 million, or 14.2% of net revenues, in the
prior year period. This increase in the gross profit percentage was attributable
primarily to increased sales from the Company's retail segment, which was
partially offset by decreased efficiencies associated with lower production
levels, which resulted from a decrease in backlog of orders.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $23.5 million, or 7.9% of net
revenues, during the year ended January 2, 1998, as compared with $17.6 million,
or 5.7% 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 selling expenses generally
associated with the Company's retail operation, general salary increases and the
addition of new employees who were hired in order to staff retail operations.

Operating Income

See Footnote 10 for description of Revenues, Gross Profit and Operating Income
by segments.

Provision for Credit Losses

The provision for credit losses for the year ended January 2, 1998 was $187,000
as compared with $1.2 million for the year ended January 3, 1997. The decrease
in the current year provision reflects the reduction of loan originations by
Wenco, which occurred in February 1997.

Non-Recurring Charge

During fiscal year 1997, the Company recorded a $2.1 million pre-tax ($1.3
million after-tax) charge in connection with its decision to close its
manufactured housing facility located in Pennsylvania. The decision was based
primarily on changes in local market conditions and operating results of the
facility. The non-recurring charge primarily consisted of components of goodwill
and estimated closing costs. Such closing costs include estimates of warranty,
lease obligations and severance pay.

Interest Expense

Interest expense for the year ended January 2, 1998 was $1.4 million as compared
with $131,000 for the year ended January 3, 1997. The increase in interest
expense in the current year was a result of increased notes payable associated
with the floor plan financing of the Company's retail inventory and a $6.3
million increase in long-term debt.

Interest Income

Interest income for the year ended January 2, 1998 was $470,000 as compared with
$593,000 for the year ended January 3, 1997. The decrease in interest income
reflects lower average cash and cash equivalent balances during the year ended
January 2, 1998.

<PAGE>   14

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
expense for the year ended January 2, 1998 was $7.1 million, or an effective tax
rate of 38.4%, compared with $9.5 million, or an effective tax rate of 38.5%,
for the year ended January 3, 1997. The decline in income tax expense is a
result of lower income in 1997.

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.

During the year ended January 1, 1999, the Company's cash provided by operations
was approximately $11.0 million. Cash provided by operations included net income
of $9.3 million and increased accounts payable and accrued liabilities of $1.4
million, which was partially offset by increased accounts receivable and
inventories of $2.4 million and loan originations of $2.2 million. In addition
to cash provided by operating activities, other significant cash flows included
capital expenditures of $3.2 million, purchase of subsidiaries for $7.2 million,
repurchase of common stock of $16.1 million, increased net borrowings of $2.8
million and the repayment of long-term debt of $1.2 million.

During the year ended January 2, 1998, the Company's cash provided by operations
was approximately $11.1 million. Cash provided by operations included net income
of $11.4 million, which was partially offset by increased accounts receivable
and prepayments and other of $5.1 million, decreased accounts payable and
accrued liabilities of $2.4 million, and loan originations of $1.3 million. In
addition to cash provided by operating activities, other significant cash flows
included capital expenditures of $6.1 million, purchase of subsidiary for $1.4
million, increased organization and pre-operating costs of $499,000, repurchase
of common stock of $10.2 million, investments in joint ventures of $2.7 million,
increased net borrowings of $5.2 million and the sale of installment contracts
of $16.7 million.

At January 1, 1999, the Company's net working capital was $21.3 million,
including $4.3 million in cash and cash equivalents, as compared with $32.9
million at January 2, 1998, including $17.7 million in cash and cash
equivalents. The decrease in net working capital was primarily attributable to a
decrease in cash and cash equivalents of $13.4 million partially offset by
increased inventories of $8.3 million, and by increased notes payable of
approximately $4.6 million. The increase in inventory and notes payable was
primarily attributable to the homes held at the recently acquired retail
locations and the related floor-plan financing. The Company also has a $25
million unsecured line of credit which is renewable annually and bears interest
at the London Interbank Offered Rate ("LIBOR") plus 1.5%. 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 $7.0 million on
this line at January 1, 1999 and no outstanding borrowings at January 2, 1998.

Substantially all of the Company's 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 agreement,
the financial institution which provides the 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
dealer, to repurchase the homes at the Company's original invoice price plus
certain administrative and shipping expenses less any principal payments made by
the dealer. At January 1, 1999, the Company's contingent repurchase liability
under floor plan financing arrangements was approximately $94 million. While
homes that have been repurchased by the Company under floor-plan financing
arrangements are usually sold to other dealers and losses experienced to date
under these arrangements have been insignificant, 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.

Expansion

In February 1998, the Company acquired substantially all of the assets of a
manufactured housing retailer in Georgia at a purchase price of approximately
$779,000.

In April 1998, the Company acquired substantially all of the assets of a
manufactured housing retailer in Kentucky and West Virginia at a purchase price
of approximately $5.1 million. In May 1998, the Company acquired substantially
all of the assets of a manufactured housing retailer in South Carolina at a
purchase price of approximately $946,000. In July 1998, the Company acquired
substantially all the assets of a manufactured housing retailer in Kentucky at a
purchase price of approximately $460,000. Also in July 1998, the Company
acquired property in Tennessee at a purchase price of $220,000. In September
1998, the Company acquired substantially all the assets of two manufactured
housing retailers one in Tennessee and one in Georgia at a purchase price of

<PAGE>   15

approximately $1.3 million. In the foregoing acquisitions, the Company assumed
liabilities of $1.5 million.

Capital Expenditures

In October 1998, the Company approved the expenditure of $3.3 million to upgrade
the Company's software programs and operating systems. The Company anticipates
it will fund these expenditures through a combination of equipment leasing and
available cash.

Stock Repurchase

In October 1998, the Company extended its stock repurchase program for an
additional twelve months and increased the number of shares eligible for
purchase from 3,000,000 to 4,000,000. From the inception of the program to March
23, 1999, the Company has repurchased 3,505,900 shares at a cost of
$29,354,387.50, or an average cost of $8.37 per share. The Company paid for
these purchases and intends to pay for any future purchases out of available
cash.

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.

Year 2000 Compliance

Many currently installed computer systems and software products are coded to
accept only two-digits entries in the date code field and cannot distinguish
dates after the year 2000. These date code fields will need to distinguish "Year
2000" dates from earlier dates and, as a result, many companies' software and
computer systems may need to be upgraded or replaced in order to comply with
such "Year 2000" requirements.

Although the Company is currently working to resolve the potential impact of the
Year 2000 issue on the computerized systems it utilizes internally, and with
regard to its products and customers, at this time, the Companies systems are
not Year 2000 compliant.

Beginning in the fourth quarter of 1998, the Company commenced replacement of
its current information technology system with a new system. The replacement,
which is expected to be completed in mid-calendar year 1999, is required to meet
current and future needs of the Company's business as well as to make more
efficient various administrative and operating functions. Because the Company
did not undertake this replacement for reasons of Year 2000 compliance, the
costs of this conversion have not been identified as Year 2000 compliance costs.
The current upgrading of the Company's software programs and operating systems
will cost approximately $3.3 million. The Company anticipates it will fund such
expenditures through a combination of equipment leasing and available cash. The
Company believes that these new programs and systems will be Year 2000
compliant.

The failure of the Company to make its systems Year 2000 compliant in a timely
manner will have a material adverse effect on the Company.

The Company relies upon various vendors, utility companies, telecommunications
service companies, delivery service companies and other service providers, which
are outside of the Company's control. The failure of such service providers to
make their systems Year 2000 compliant could have a material adverse effect on
the Company's financial condition and results of operations. The Company has not
yet determined the extent to which the computer systems of such service
providers are Year 2000 compliant, if at all. The failure of the Company's
vendors to make their systems Year 2000 compliant in a timely manner will have a
material adverse effect on the Company.

"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, 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 expansion 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; the failure of the Company or its
vendors to make their systems Year 2000 compliant in a timely manner; and other
risks indicated from time to time in the Company's filings with the Securities
and Exchange Commission.


<PAGE>   16

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO CONSOLIDATED FINANCIAL 
        STATEMENTS

Consolidated Balance Sheets
Southern Energy Homes, Inc. and subsidiaries
<TABLE>
<CAPTION>
                                                            January 1,       January 2,
                                                                  1999             1998
                                                         -------------    ------------- 
<S>                                                       <C>              <C>
Assets
Current Assets:
  Cash and cash equivalents                              $   4,261,000    $  17,676,000
  Accounts receivable, less allowance for doubtful
       accounts of $166,000 and $180,000, respectively      23,071,000       22,399,000
  Installment contracts receivable                             211,000          165,000
  Inventories                                               36,790,000       28,479,000
  Deferred tax benefits                                      1,919,000        1,816,000
  Prepayments and other                                        803,000        1,134,000
                                                          ------------     ------------
                                                            67,055,000       71,669,000
                                                          ------------     ------------
Property, plant, and equipment:
  Property, plant, and equipment, at cost                   32,674,000       28,982,000
  Less - accumulated depreciation                           (9,354,000)      (7,130,000)
                                                          ------------     ------------
                                                            23,320,000       21,852,000
                                                          ------------     ------------
Intangibles and other non-current assets:
  Installment contracts receivable, less allowance
      for credit losses of $295,000 and $696,000,
      respectively                                          11,130,000        9,673,000
  Goodwill                                                  14,995,000       14,258,000
  Non-compete agreements                                       575,000          421,000
  Organization and pre-operating costs                            --            825,000
  Investment in joint ventures                               4,963,000        3,764,000
  Other assets                                                 730,000          791,000
                                                          ------------     ------------
                                                            32,393,000       29,732,000
                                                          ------------     ------------
                                                          $122,768,000     $123,253,000
                                                          ============     ============
Liabilities and Stockholders' Equity
Current liabilities:
  Notes payable                                          $  20,556,000    $  15,932,000
  Current maturities of long-term debt                       1,099,000        1,106,000
  Accounts payable                                           4,393,000        3,449,000
  Volume incentive payable                                   8,175,000        7,828,000
  Accrued payroll-related expenses                           3,235,000        2,693,000
  Accrued workers' compensation                              1,753,000        1,995,000
  Accrued warranty                                           2,543,000        1,939,000
  Accrued other                                              3,996,000        3,824,000
                                                          ------------     ------------
                                                            45,750,000       38,766,000
                                                          ------------     ------------
Long-term debt                                               3,569,000        4,720,000
                                                          ------------     ------------
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, 15,638,890 shares issued at January
    1, 1999; 15,572,326  shares issued at January 2, 1998        2,000            2,000
  Treasury stock, at cost, 3,000,300 shares at
     January 1, 1999 and 1,122,100 at January 2, 1998      (26,282,000)     (10,201,000)
  Capital in excess of par                                  37,682,000       37,215,000
  Retained earnings                                         62,047,000       52,751,000
                                                          ------------     ------------
                                                            73,449,000       79,767,000
                                                          ------------     ------------
                                                          $122,768,000     $123,253,000
                                                          ============     ============
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets.

<PAGE>   17

Consolidated Statements of Operations
Southern Energy Homes, Inc. and subsidiaries
<TABLE>
<CAPTION>

                                                           YEAR ENDED    
                                         ------------------------------------------   
                                            January 1,     January 2,     January 3,
                                                  1999           1998           1997
                                         -------------  -------------  -------------
                                            (52 WEEKS)     (52 WEEKS)     (53 WEEKS)
                                         -------------  -------------  -------------
<S>                                      <C>            <C>            <C>          
Net revenues                             $ 306,964,000  $ 296,809,000  $ 306,844,000
Cost of sales                              251,670,000    250,720,000    263,197,000
                                         -------------  -------------  -------------
Gross profit                                55,294,000     46,089,000     43,647,000
                                         -------------  -------------  -------------
Operating expenses:
  Selling, general and administrative       35,099,000     23,494,000     17,634,000
  Provision for credit losses                  300,000        187,000      1,177,000
  Amortization of intangibles                  792,000        853,000        517,000
  Start-up costs                               739,000            --              --
  Non-recurring charges                        934,000      2,146,000             --
                                         -------------  -------------  -------------
                                            37,864,000     26,680,000     19,328,000
                                         -------------  -------------  -------------
Operating income                            17,430,000     19,409,000     24,319,000
Interest expense                             2,392,000      1,412,000        131,000
Interest income                                854,000        470,000        593,000
                                         -------------  -------------  -------------
Income before provision for
  income taxes and cumulative effect
  of accounting change                      15,892,000     18,467,000     24,781,000
Provision for income taxes                   6,089,000      7,092,000      9,535,000
                                         -------------  -------------  -------------
Income before cumulative effect of
  accounting change                          9,803,000     11,375,000     15,246,000
Cumulative effect of accounting change,
  net of tax of $318,000                       507,000           --             --
                                         -------------  -------------  -------------
Net income                               $   9,296,000  $  11,375,000  $  15,246,000
                                         =============  =============  =============
Per share data:
  Income before cumulative effect of 
   accounting change:
     Basic                               $        0.73  $        0.76  $        1.01
                                         =============  =============  =============                              
     Diluted                             $        0.72  $        0.75  $        1.00
                                         =============  =============  =============                              
  Cumulative effect of accounting 
   change, net of tax:
     Basic                               $        0.04  $        0.00  $        0.00
                                         =============  =============  =============                              
     Diluted                             $        0.04  $        0.00  $        0.00
                                         =============  =============  =============                              
  Net income per share:
     Basic                               $        0.69  $        0.76  $        1.01
                                         =============  =============  =============                              
     Diluted                             $        0.68  $        0.75  $        1.00
                                         =============  =============  =============                              
Weighted average number of common shares:
  Basic                                     13,440,607     15,002,006     15,122,578
                                         =============  =============  =============
  Diluted                                   13,647,216     15,129,530     15,260,484
                                         =============  =============  =============
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.

<PAGE>   18



Consolidated Statements of Stockholders' Equity
Southern Energy Homes, Inc. and subsidiaries
<TABLE>
<CAPTION>

                                   Common Stock              Treasury Stock             Capital
                              ----------------------     -------------------------     in Excess       Retained
                                Shares        Amount      Shares        Amount          of Par         Earnings          Total  
                              ----------     -------     ---------   -------------    ------------    ------------    ------------
<S>                           <C>            <C>         <C>         <C>              <C>             <C>             <C>         
Balance, December 29, 1995    15,053,388     $ 1,000            --   $          --    $ 31,111,000    $ 26,130,000    $ 57,242,000
 
  Exercise of stock options       51,599          --            --              --         357,000              --         357,000
  Issuance of common stock
     in connection with
     acquisition                 332,814       1,000            --              --       4,531,000              --       4,532,000
  Net income                          --          --            --              --              --      15,246,000      15,246,000
                              ----------     -------     ---------   -------------    ------------    ------------    ------------
Balance, January 3, 1997      15,437,801       2,000            --              --      35,999,000      41,376,000      77,377,000

  Exercise of stock options       26,154          --            --              --         181,000              --         181,000
  Issuance of common stock
     in connection with
     acquisitions                108,371          --            --              --       1,035,000              --       1,035,000
  Treasury stock repurchases          --                 1,122,100     (10,201,000)             --              --     (10,201,000)
  Net income                          --          --            --              --              --      11,375,000      11,375,000
                              ----------     -------     ---------   -------------    ------------    ------------    ------------
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
                              ==========     =======     =========   =============    ============    ============    ============
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.

<PAGE>   19


Consolidated Statements of Cash Flows
Southern Energy Homes, Inc. and subsidiaries
<TABLE>
<CAPTION>
                                                                            Year Ended                     
                                                           --------------------------------------------
                                                             January 1,      January 2,      January 3,
                                                                   1999            1998            1997
                                                              (52 WEEKS)      (52 WEEKS)      (53 WEEKS)
                                                           ------------    ------------    ------------
<S>                                                        <C>             <C>             <C>         
Operating activities:
Net income                                                 $  9,296,000    $ 11,375,000    $ 15,246,000
Adjustments to reconcile net income to net cash
 provided by (used in) operating activities:
   Equity income of joint ventures                           (1,121,000)       (282,000)             --
   Gain on sale of installment contracts                             --        (775,000)             --
   Non--recurring charges                                       934,000       2,146,000              --
   Depreciation of property, plant, and equipment             2,462,000       2,244,000       1,168,000
   Provision (credit) for deferred income taxes                 215,000          13,000        (560,000)
   (Gain) loss on sale of property, plant, and equipment        (50,000)        (25,000)         37,000
   Amortization of intangibles                                  792,000         853,000         517,000
   Cumulative effect of change in accounting
        principle                                               507,000              --              --
   Provision (credit) for doubtful accounts receivable           20,000         (77,000)        210,000
   Provision for credit losses on installment contracts         300,000         187,000       1,177,000
   Origination of installment contracts                      (2,186,000)     (1,272,000)    (27,497,000)
   Principal collected on originated
     installment contracts                                      383,000         996,000         490,000
Change in assets and liabilities, net of effect
 from purchase of subsidiaries:
   Accounts receivable                                         (743,000)     (4,850,000)      3,936,000
   Inventories                                               (1,653,000)      3,194,000      (7,039,000)
   Prepayments and other                                        393,000        (250,000)       (255,000)
   Accounts payable                                             944,000        (854,000)     (1,174,000)
   Accrued liabilities                                          489,000      (1,572,000)      4,525,000
                                                           ------------    ------------    ------------
      Net cash provided by (used in) operating activities    10,982,000      11,051,000      (9,219,000)
                                                           ------------    ------------    ------------
Investing activities:
   Purchase of subsidiaries, net of cash acquired            (7,171,000)     (1,410,000)     (1,217,000)
   Capital expenditures                                      (3,241,000)     (6,089,000)     (5,501,000)
   Maturities of investments                                         --              --       2,076,000
   Investments in joint ventures                                (78,000)     (2,712,000)       (770,000)
   Increase in organization and pre--operating costs                 --        (499,000)       (305,000)
   Proceeds from sale of property, plant, and equipment          50,000         162,000          68,000
                                                           ------------    ------------    ------------
      Net cash used in investing activities                 (10,440,000)    (10,548,000)     (5,649,000)
                                                           ------------    ------------    ------------
Financing activities:
   Purchase of treasury stock                               (16,081,000)    (10,201,000)             --
   Net borrowings on notes payable                            2,815,000        (668,000)      3,060,000
   Repayments of long--term debt                             (1,158,000)       (500,000)             --
   Borrowings on long--term debt                                     --       6,326,000              --
   Proceeds from exercise of stock options                      458,000         181,000         357,000
   Proceeds from issuance of common stock                         9,000              --              --
   Proceeds from sale of installment contracts                       --      16,736,000              --
                                                           ------------    ------------    ------------
      Net cash provided by (used in) financing activities   (13,957,000)     11,874,000       3,417,000
                                                           ------------    ------------    ------------
Net increase (decrease) in cash and cash equivalents        (13,415,000)     12,377,000     (11,451,000)
Cash and cash equivalents at beginning of period             17,676,000       5,299,000      16,750,000
                                                           ------------    ------------    ------------
Cash and cash equivalents at end of period                 $  4,261,000    $ 17,676,000    $  5,299,000
                                                           ============    ============    ============
Supplemental cash flow information:
   Cash paid for interest                                  $  2,531,000    $  1,290,000    $    131,000
   Cash paid for income taxes                              $  5,091,000    $  7,434,000    $  9,369,000
</TABLE>

Supplemental disclosures of non-cash investing activities:
See Note 3.

The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.

<PAGE>   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 three reportable
segments: manufacturing, retail and supply. 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 have continued to expand through various acquisitions during
fiscal 1997 and 1996 (see Note 3). 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.
Wenco Finance, Inc., the Company's wholly owned finance subsidiary ("Wenco
Finance"), until February 1997 had been originating and servicing consumer loans
primarily for homes manufactured by the Company. In February 1997, the Company
formed a joint venture with 21st Century Mortgage Corporation ("21st Century")
(see Note 3). The joint venture, Wenco 21, offers consumer financing for homes
manufactured by the Company as well as other homes sold through its retail
centers and independent dealers. In light of the shift in consumer finance
activities to Wenco 21, Wenco Finance has restricted its loan origination
activities and has engaged 21st Century to service its existing loan portfolio.
(See Note 4).

         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 1998 and 1997 fiscal years
included 52 weeks and the 1996 fiscal year included 53 weeks.

         The Company's business is seasonal and cyclical with the potential for
significant fluctuations in quarterly 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.

         The preparation of financial statements in conformity with generally
accepted accounting principles 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 fiscal 1998, the Company reclassified several accounts. Prior period
amounts have been reclassified to conform with the 1998 presentation. There was
no effect on net income or stockholders' equity as a result of these
reclassifications.

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
the venture in the accompanying consolidated statements of operations (see Note
3).

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:

<TABLE>
<CAPTION>
                    January 1,    January 2,
                          1999          1998
                   -----------   -----------
<S>                <C>           <C>        
Raw materials     $ 10,938,000  $  9,498,000
Work in progress     1,166,000     1,089,000
Finished goods      24,686,000    17,892,000
                  ------------  ------------
                  $ 36,790,000  $ 28,479,000
                  ============  ============
</TABLE>

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 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:

<PAGE>   21

<TABLE>
<CAPTION>

                              January 1,    January 2,
                                    1999          1998
                            ------------  ------------
<S>                         <C>           <C>         
Land                        $    495,000  $    495,000
Buildings and improvements    16,804,000    15,938,000
Machinery and equipment       10,315,000     9,503,000
Office equipment               2,200,000     1,323,000
Leasehold improvements         2,231,000     1,649,000
Construction in progress         629,000        74,000
                            ------------  ------------
                            $ 32,674,000  $ 28,982,000
                            ============  ============
</TABLE>

         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.

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
incurred.

         An analysis of the allowance for losses on installment contracts
receivable is as follows:
<TABLE>
<CAPTION>
                             January 1,     January 2,
                                   1999           1998
                             ----------    -----------
<S>                           <C>          <C>        
Balance, beginning of year    $ 696,000    $ 1,142,000
Provision for credit losses     300,000        187,000
Charge-offs                    (701,000)      (633,000)
                              ---------    -----------
Balance, end of year          $ 295,000    $   696,000
                              =========    ===========
</TABLE>

Intangible Assets
         The intangible assets recorded by the Company in connection with
various acquisitions are amortized on a straight-line basis. As of January 1,
1999 and January 2, 1998, accumulated amortization of intangibles amounted to
$2,889,000 and $3,011,000, respectively (see Note 13). In the fiscal year ended
January 2, 1998, accumulated amortization included amounts related to
organization and pre-operating costs. The applicable intangible amortization
periods are as follows:

Goodwill                     30 years
Non-compete agreements       4 to 10 years

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 9).

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 up to five years 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


<PAGE>   22

insurance coverage for all workers' compensation claims in excess of $300,000
per occurrence (with an annual aggregate stop-loss limit of $4,000,000 for all
claims), and for all health-care claims in excess of $75,000 per occurrence
(with an annual aggregate stop-loss limit of approximately $5,200,000 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 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 January 1,
1999, and January 2, 1998, approximated book values at those dates.

Revenue Recognition - Manufactured Housing
         The Company manufactures its homes pursuant to dealer orders, and sales
to independent dealers and related transit costs are recognized upon completion
of the home. Almost all of the Company's sales to its independent dealers are
under floor-plan financing arrangements. Under these floor-plan financing
arrangements, the Company bills the dealers upon completion of manufacture and
at the same time transfers title. Consistent with these arrangements, the
Company typically does not allow independent dealers to cancel a purchase after
manufacture by the Company has commenced. The Company carries insurance which
covers possible damage to a home while on the Company's premises prior to
shipment and during shipment when transported by the Company's trucking
subsidiary. Independent trucking companies transporting the Company's homes
carry insurance to cover damage during shipment. With respect to its retail
operations, the Company records a retail home sale when the customer signs an
installment contract for the purchase of a manufactured home and the Company
receives the appropriate down payment.

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.

Earnings Per Share
         The EPS results are as follows:
<TABLE>
<CAPTION>

                                           Income Before                Income Before
                                              Cumulative      Weighted     Cumulative
                                               Effect of       Average      Effect of
                                              Accounting        Common     Accounting
                                                  Change        Shares         Change
                                           -------------   -----------  -------------     
<S>                                           <C>            <C>                <C>    
January 1, 1999
         Basic                              $  9,803,000    13,440,607         $ 0.73
         Dilutive effect of options issued            --       206,609          (0.01)
                                            ------------   -----------         ------
         Diluted                            $  9,803,000    13,647,216         $ 0.72
                                            ------------   -----------         ------
January 2, 1998
         Basic                              $ 11,375,000    15,002,006         $ 0.76
         Dilutive effect of options issued            --       127,524          (0.01)
                                            ------------   -----------         ------
         Diluted                            $ 11,375,000    15,129,530         $ 0.75
                                            ------------   -----------         ------
January 3, 1997
         Basic                              $ 15,246,000    15,122,578         $ 1.01
         Dilutive effect of options issued            --       137,906          (0.01)
                                            ------------   -----------         ------
         Diluted                            $ 15,246,000    15,260,484         $ 1.00
                                            ------------   -----------         ------

</TABLE>

<PAGE>   23

3. Business Combinations and Investments in Joint Ventures

During 1998, the Company completed the following acquisitions (in millions):

<TABLE>
<CAPTION>
                                                   Fair
                                                 Value of
                                                  Assets       Intangibles  Purchase
Date              Seller                         Acquired        Recorded     Price
------------------------------------------------------------------------------------
<S>               <C>                              <C>            <C>        <C>  
February 1998     U.S. Homes of Savannah           $ 0.8          $  --      $ 0.8
April 1998        Rainbow Homes, Inc.                3.5            1.6        5.1
May 1998          Hospitality Housing Outlet Inc.
                  and Foothills Housing, Inc.        0.8            0.1        0.9
July 1998         Cedar Creek Homes, LLC             0.3            0.1        0.4
July 1998         Ken & Tina Earp                    0.2             --        0.2
September 1998    Family Housing, Inc.               0.6            0.1        0.7
September 1998    Baw, Inc.                          0.6             --        0.6
                                                   -----          -----      -----   
                                                   $ 6.8          $ 1.9      $ 8.7
------------------------------------------------------------------------------------
</TABLE>

The above acquisitions 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.

         On December 3, 1997, the Company acquired substantially all of the
assets and the business of A & G, a manufactured housing retail company
headquartered in Charleston, South Carolina. The Company paid $1.4 million in
cash and issued 94,115 shares of the Company's common stock (approximate market
value on December 3, 1997 of $869,000). The acquisition was accounted for under
the purchase method of accounting; thus the financial statements for the year
ended January 2, 1998 reflect the operations of A & G from the date of
acquisition. The total purchase price exceeded the fair value of net assets
acquired (assets of $4.9 million less liabilities of $4.6 million) by
approximately $2.0 million, which amount is being amortized over 30 years as
goodwill. The results of operations with respect to A & G were not significant
and, accordingly, no pro forma results have been provided.

         On July 3, 1997, the Company made an initial capital contribution of
$2.0 million to purchase a one-third interest in 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 $469,000 and
$97,000 in 1998 and 1997, respectively.

         In February 1997, the Company made an initial capital contribution of
$500,000 to Wenco 21, representing a 50% ownership interest in the joint
venture. The company's share of income from Wenco 21 amounted to $210,000 and
$58,000 in 1998 and 1997, respectively.

         In December 1996, the Company purchased a 33% interest in a
manufacturing joint venture with other manufactured home builders for $770,000.
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 $442,000 and $127,000 in 1998 and 1997,
respectively.

         On November 21, 1996, the Company acquired BR Holding, a holding
company which operated a group of retail companies participating in the retail
sale of manufactured homes. BR Holding also operated an insurance agency, which
provided homeowner insurance for manufactured homes. The Company paid $1,075,000
in cash and issued 332,814 shares of the Company's common stock (approximate
market value on November 21, 1996 of $4,532,000). The acquisition was accounted
for under the purchase method of accounting; thus the financial statements
reflect the operations of BR Holding from the date of acquisition. The total
purchase price exceeded the fair value of net assets acquired (assets of $9.9
million less liabilities of $9.8 million) by $5,480,000, which amount is being
amortized over 30 years as goodwill. In addition, the Company entered into
four-year non-compete agreements with the former stockholders of BR Holding for
an aggregate amount of $50,000, which amount is included in the cash purchase
price noted above. The stock purchase agreement requires the Company to make
additional payments to the seller contingent on future earnings performance of
BR Holding. Any additional payments will be made 20% in cash and 80% in shares
of the


<PAGE>   24

Company's common stock and will be accounted for as goodwill and amortized over
the remaining recovery period of the goodwill. In fiscal 1997 an additional
payment was made in the amount of $197,000 ($49,000 in cash and $148,000 in
stock) related to this contingency. At January 1, 1999, there was no payment
obligation. The results of operations with respect to BR Holding were not
significant and, accordingly, no pro forma results have been provided.

4. Sale of Installment contracts:
         In August 1997, the Company sold at par installment contracts totaling
$16.7 million, along with the related servicing. The Company retained an
interest in certain of the cash flows ascribed to such loans (the "interest only
strip"). The fair value of the interest only strip was calculated using the
expected future cash flows discounted at the current market rate and considering
prepayment and default rates on the loans. The Company also retained credit
risks on the installment contracts sold and has recorded a reserve for such
estimated credit losses over the life of the loans in accordance with SFAS No.
125, Accounting for Transfer and Servicing of Financial Assets and
Extinguishment of Liabilities. The resulting gain on the sale amounted to $.8
million.

5. Income Taxes:
         The provision (benefit) for income taxes for the respective periods
ended was as follows:

<TABLE>
<CAPTION>
                     January 1,    January 2,    January 3,
                           1999          1998          1997
                    -----------   -----------   -----------
<S>                 <C>           <C>           <C> 
Federal:
         Current    $ 5,272,000   $ 6,594,000   $ 9,294,000
         Deferred       192,000        11,000      (521,000)
                    -----------   -----------   -----------
                      5,464,000     6,605,000     8,773,000
                    -----------   -----------   -----------
State:
         Current        602,000       485,000       801,000
         Deferred        23,000         2,000       (39,000)
                    -----------   -----------   -----------
                        625,000       487,000       762,000
                    -----------   -----------   -----------
Total provision     $ 6,089,000   $ 7,092,000   $ 9,535,000
                    ===========   ===========   ===========
</TABLE>

         The provision for income taxes differed from the amounts computed by 
applying the federal statutory rate of 35% due to the following:

<TABLE>
<CAPTION>
                                               January 1,     January 2,    January 3,
                                                     1999           1998          1997
                                              -----------    -----------   -----------
<S>                                           <C>            <C>           <C>        
Tax provision at the federal statutory rate   $ 5,562,000    $ 6,463,000   $ 8,671,000
State income taxes, net of federal benefit        406,000        316,000       496,000
Goodwill amortization                             168,000        127,000        58,000
Other                                             (47,000)       186,000       310,000
                                              -----------    -----------   -----------
                                              $ 6,089,000    $ 7,092,000   $ 9,535,000
                                              ===========    ===========   ===========
</TABLE>

         Temporary differences which created net deferred tax benefits at
January 1, 1999 and January 2, 1998 are as follows:

<TABLE>
<CAPTION>
                                                  January 1,   January 2,
                                                        1999         1998
                                                 -----------  -----------
<S>                                             <C>             <C>   
Deferred tax benefits:
         Warranty accrual                        $   943,000  $   720,000
         Workers' compensation accrual               636,000      871,000
         Accrued expenses                            613,000      423,000
         Inventory                                    13,000      358,000
         Organization and pre-operating
            costs                                    285,000         --
         Other                                       428,000      313,000
                                                 -----------  -----------
                                                   2,918,000    2,685,000
Deferred tax liabilities:
         Depreciation                                501,000      168,000
         Goodwill amortization                       218,000      170,000
         Organization and pre-operating costs           --        175,000
         Other                                       280,000      356,000
                                                 -----------  -----------
                                                     999,000      869,000
                                                 -----------  -----------
Net deferred tax benefits                        $ 1,919,000  $ 1,816,000
                                                 ===========  ===========
</TABLE>
<PAGE>   25

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
payment when the home is sold to a customer. The weighted average interest rates
on these borrowings during 1998 and 1997 were 7.9% and 7.0%, respectively. Notes
payable at January 1, 1999 and January 2, 1998 amounted to $13,556,000 and
$15,932,000, respectively. During 1998, the Company began financing a portion of
its retail inventory with its $25 million unsecured bank line of credit which is
renewable annually and bears interest at the London Interbank Offered Rate
("LIBOR") plus 1.5% (6.56% at January 1, 1999). 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 $7,000,000 on this line at
January 1, 1999 and no outstanding borrowings at January 2, 1998.
         The Company's long-term debt at January 1, 1999 and January 2, 1998 is
as follows:

<TABLE>
<CAPTION>
                                                          January 1,    January 2,
                                                                1999          1998
                                                         -----------   -----------
<S>                                                      <C>           <C>   
Working capital loan payable, interest at 6.56%,
due in monthly installments of $83,333 through
June 11, 2002, secured by real estate                    $ 3,500,000   $ 4,500,000
Construction term loan payable, interest at LIBOR
plus 1.7% (6.76% at January 1, 1999), due in monthly
installments of $15,591 through March 2003, secured
by real estate                                             1,168,000     1,326,000
                                                         -----------   -----------
Total long-term debt                                       4,668,000     5,826,000
Less amounts due within one year                           1,099,000     1,106,000
                                                         -----------   -----------
                                                         $ 3,569,000   $ 4,720,000
                                                         ===========   ===========        
</TABLE>

         The Company's term loans contain various restrictive covenants,
generally common to such loan agreements, with which the Company was in
compliance at January 1, 1999.

         The Company's long-term debt contractually matures in each of the next
five fiscal years as follows: $1,099,000 in 1999, $1,106,000 in 2000, $1,114,000
in 2001, $622,000 in 2002, $131,000 in 2003, and $596,000 thereafter.

7. Commitments and Contingencies:

Repurchase Agreements
         It is customary practice for companies in the manufactured housing
industry to enter into repurchase agreements with financial institutions which
provide financing to dealers. Generally, the agreements provide for the
manufacturer to repurchase manufactured homes from the financing institution in
the event of repossession upon a dealer's default. The Company's contingent
liability under such agreements was approximately $94 million as of January 1,
1999, and $92 million as of January 2, 1998. Losses experienced under these
agreements have not been significant and, in the opinion of management, any
future losses under these agreements will not have a material effect on the
financial statements of the Company.

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 January
1, 1999, January 2, 1998, and January 3, 1997, interest expense related to these
agreements amounted to $742,000, $841,000, and $735,000, respectively.

Operating Leases
         The Company leases certain manufacturing facilities and retail sales
centers under operating leases. Rent expense under all leases was $1.8 million
for the year ended January 1, 1999, $1.1 million for the year ended January 2,
1998, and $404,000 for the year ended January 3, 1997. Future minimum lease
payments for each of the next five years at January 1, 1999, are $2.1 million,
$1.8 million, $1.6 million, $1.0 million, and $0.6 million.

Litigation
         The Company entered into a contract with Gesellschoft fur Bauen Und
Wohnen Hannover MbH ("GBH"), a German housing authority, which provided for the
construction of two modular home projects though GBH chose a local company to
complete the second project. GBH originally indicated that the first project was
completed satisfactorily, but subsequently asserted warranty claims against the
Company. GBH also claims the Company is responsible for its additional costs on
the second project. The Company claims GBH is withholding monies due it from the
first project and disputes its liability for the warranty claims on the first
project and the extra costs on the second project. GBH attempted on March 26,
1997 to draw on a Company letter of credit, but an Alabama state court issued a
temporary restraining order enjoining payment on the letter of credit. In
January, 1998, the Alabama Supreme Court,


<PAGE>   26

without ruling on the merits of whether GBH was committing fraud by drawing on
the letter of credit, issued an opinion allowing GBH to draw on the letter of
credit. GBH promptly drew on the Company's letter of credit in the amount of
$580,000. There has not been any discovery or decision on the merits of the
underlying transaction and whether the Company has a valid claim to recover the
money paid under the letter of credit. After payment of the letter of credit,
other than potential warranty claims, management believes there is no other
material exposure to the Company with regard to GBH. At this time there is no
activity of any kind by GBH to assert any claims against the Company.

         On March 1, 1999 the Company, without admitting any liability, entered
into a settlement with HUD that requires the Company to correct construction and
safety violations in homes manufactured at the North Carolina manufacturing
facility. In addition, the settlement requires the Company to inspect 600
additional homes for possible violations. The Company has agreed to a one-year
warranty extension of certain homes. HUD claimed that the Company failed to
comply with the consumer notification and defect correction requirements of the
1974 Act. The Company has been assessed a civil penalty by HUD of up to $300,000
in connection with the settlement; however, this penalty can be reduced by HUD
depending on Company actions.

         The Company has been named, along with several other manufactured
housing companies, as a defendant in a class action lawsuit filed in Kentucky in
September 1998, claiming wrongful conduct, fraudulent misrepresentation and that
manufactured housing units are unsafe and/or dangerous for residential use. The
amount of the damages has not been specified. The Company believes the claims
are without merit and plans to vigorously defend itself against these claims.
However, the outcome of the litigation can not be predicted and such outcome
could have a material adverse effect on the Company.

         The Company is a party to various other legal proceedings incidental to
its business. The majority of these legal proceedings relate to employment
matters or product warranty liability claims for which management believes
adequate reserves are maintained. 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. 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 166,100, 192,200, and 93,909
shares of common stock in 1998, 1997, and 1996, 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 $10.125 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 with the old options being
included as forfeitures.

         At January 1, 1999, options to purchase 483,780 shares were
exercisable. Total options outstanding were 561,464 at January 1, 1999 with a
weighted average remaining contractual life of 8.1 years and a weighted average
exercise price of $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 1998, 1997 and 1996, the Company granted options to
acquire 11,250, 11,250 and 15,000 shares of common stock 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 January 1, 1999, options
to purchase 37,500 shares were exercisable. Total options outstanding were
37,500 at January 1, 1999 with a weighted average remaining contractual life of
8.4 years, weighted average exercise price of $10.87 and a range of exercise
prices from $9.50 to $11.625.

         The Company accounts for these plans under 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 1998, 1997, and 1996 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:

<TABLE>
<CAPTION>

                                             1998           1997           1996
                                      -----------   ------------   ------------
<S>                                   <C>           <C>            <C>         
Net income - as reported              $ 9,296,000   $ 11,375,000   $ 15,246,000
Net income - pro forma                $ 8,656,000   $ 10,783,000   $ 14,993,000
As reported - net income per share:
                  Basic               $      0.69   $       0.76   $       1.01
                  Diluted             $      0.68   $       0.75   $       1.00
Pro forma- net income per share:
                  Basic               $      0.64   $       0.72   $       0.99
                  Diluted             $      0.63   $       0.71   $       0.98
</TABLE>

<PAGE>   27

         The following table summarizes the changes in the number of shares
under option pursuant to the plans described above:

<TABLE>
<CAPTION>
                                             Weighted              Weighted               Weighted
                                              Average               Average                Average
                                 January 1,  Exercise  January 2,   Exercise  January 3,  Exercise
                                       1999     Price        1998      Price        1997     Price
                                 ----------  --------  ----------   --------  ----------  --------
<S>                                 <C>        <C>        <C>         <C>        <C>        <C>   
Outstanding at beginning of year    516,714    $ 7.75     339,763     $ 7.45     285,032    $ 6.91
Granted                             738,814      6.59     203,450       8.14     108,909      7.58
Exercised                           (65,464)     6.99     (26,154)      6.93     (51,599)     6.93
Forfeited                          (591,100)     7.78        (345)      6.93      (2,579)     6.93
                                    -------    ------     -------     ------     -------    ------
Outstanding at end of year          598,964      5.83     516,714       7.75     339,763      7.45
                                    =======    ======     =======     ======     =======    ======
Exercisable at end of year          521,280    $ 5.88     399,998     $ 7.33     194,931    $ 7.28
Weighted average  fair value of
 options granted                               $ 2.40                 $ 4.24                $ 6.21
</TABLE>

         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 1998, 1997 and 1996:

<TABLE>
<CAPTION>
                                        1998    1997    1996
                                        ----    ----    ----
<S>                                     <C>     <C>     <C>  
Dividend yield                          0.00%   0.00%   0.00%
Expected volatility                     0.40    0.39    0.42
Risk-free interest rate         4.48 to 5.61    6.28    6.09
Expected life (years)                   5.00    5.00    5.00
</TABLE>

Vesting of the 1998 repriced options and the 17,250 options under the Directors
plan grant is 500,606 options vesting immediately, 49,075 vesting equally over 3
years, and 23,133 vesting equally over 2 years. Vesting of the 1997 grants is
131,250 options vesting immediately and the remainder vesting equally over three
years. Vesting of 1996 grants is 50% each year over a two-year period.

         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 January 1, 1999,
January 2, 1998, and January 3, 1997, the Company expensed $86,000, $78,000, and
$66,000, respectively, related to the plan.

9. Non-Recurring Charge:
         During fiscal year 1997, the Company recorded a $2.1 million pre-tax
($1.3 million after-tax) charge in connection with its decision to close its
manufactured housing facility located in Pennsylvania. The decision was based
primarily on changes in local market conditions and operating results of the
facility. The non-recurring charge primarily consisted of components of goodwill
and estimated closing costs. Such closing costs included estimates of warranty,
lease obligations and severance pay. During fiscal year 1998, the Company
recorded an additional charge of $934,000 ($575,000 after tax) due to the
closing of the Pennsylvania facility. The costs were related to higher than
expected warranty and workers' compensation claims than estimated in fiscal year
1997. During fiscal years ended January 2, 1998 and January 3, 1997, this
facility generated 1.0% and 3.3%, respectively, of the total revenues of the
Company.

10. Segment and Related Information:
         The Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, in 1998 which changes the way the Company
reports information about its operating segments. The information for 1997 and
1996 has been restated from the prior year's presentation in order to conform to
the 1998 presentation.

         The Company has three primary reportable segments: manufacturing,
retail operations, and component supply. 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.


<PAGE>   28

         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 net income. The Company accounts for intersegment sales and transfers as if
the sales or transfers were to third parties, that is at current market prices.
The Company does not allocate income taxes, interest income, interest expense
and unusual items to all segments. In addition, not all segments have
significant noncash items other than depreciation and amortization in reported
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:

<TABLE>
<CAPTION>
                                       1998         1997         1996
                                  ---------    ---------    ---------
<S>                               <C>          <C>            <C>  
Revenues:
     Manufacturing                $ 244,698    $ 252,049    $ 289,578
     Retail operations               76,257       47,460        4,036
     Component supply                57,271       59,044       57,185
     Other operating segments        11,159       11,884       12,159
     Eliminations                   (82,421)     (73,628)     (56,114)
                                  ---------    ---------    ---------
Total revenues                    $ 306,964    $ 296,809    $ 306,844
                                  =========    =========    =========

Gross profit:
     Manufacturing                $  29,893    $  29,026    $  39,166
     Retail operations               22,359        9,564          762
     Component supply                 5,080        5,189        4,772
     Other operating segments         9,005       10,512        9,375
     Eliminations                   (11,043)      (8,202)     (10,428)
                                  ---------    ---------    ---------
Gross Profit                      $  55,294    $  46,089    $  43,647
                                  =========    =========    =========

Segment operating income:
  Manufacturing                   $  14,852    $  12,999    $  22,008
  Retail operations                  (1,196)         444           71
  Component supply                    3,289        3,233        2,941
  Corporate                          (1,752)         256       (1,368)
  Other operating segments              824        1,758          (51)
                                  ---------    ---------    ---------
Segment operating income             16,017       18,690       23,601
Income/expenses not
  allocated to segments:
     Interest income, net               308          265          586
     Provision for income taxes      (5,876)      (7,092)      (8,557)
     Other                           (1,153)        (488)        (384)
                                  ---------    ---------    ---------
Net income                        $   9,296    $  11,375    $  15,246
                                  =========    =========    =========
</TABLE>

         Revenue from segments below the quantitative thresholds are
attributable to three other operating segments of the Company. Those segments
include a trucking business, a finance business, and a small insurance business.
None of those segments has ever met any of the quantitative thresholds for
determining reportable segments. The Corporate segment does not generate any
revenues, but does incur certain administrative expenses.

         A summary of identifiable assets, depreciation and amortization, and
capital additions for the years ended 1998, 1997, and 1996, is as follows:

<PAGE>   29

<TABLE>
<CAPTION>
                                 Identifiable  Depreciation and         Capital
                                       Assets      Amortization       Additions
                                -------------     -------------   -------------
<S>                             <C>               <C>             <C>          
1998:
     Manufacturing              $  35,926,000     $   2,164,000   $     941,000
     Retail operations             13,859,000           278,000       1,448,000
     Component supply               6,808,000           225,000         103,000
     Corporate                     69,268,000           544,000         749,000
     Other operating segments       1,665,000            43,000              --
     Eliminations                  (4,758,000)               --              --
                                -------------     -------------   -------------
     Consolidated               $ 122,768,000     $   3,254,000   $   3,241,000
                                -------------     -------------   -------------

1997:
     Manufacturing              $  36,499,000     $   2,113,000   $   2,222,000
     Retail operations             17,878,000           350,000       1,050,000
     Component supply               6,462,000           220,000         283,000
     Corporate                     62,776,000           350,000       2,534,000
     Other operating segments       1,923,000            64,000              --
     Eliminations                  (2,285,000)               --              --
                                -------------     -------------   -------------
     Consolidated               $ 123,253,000     $   3,097,000   $   6,089,000
                                -------------     -------------   -------------

1996:
     Manufacturing              $  39,903,000     $   1,058,000   $   4,024,000
     Retail operations             14,019,000            11,000         425,000
     Component supply               6,841,000           121,000         360,000
     Corporate                     48,921,000           495,000         692,000
     Other operating segments       5,463,000                --              --
     Eliminations                  (2,489,000)               --              --
                                -------------     -------------   -------------
     Consolidated               $ 112,658,000     $   1,685,000   $   5,501,000
                                -------------     -------------   -------------
</TABLE>

         The reconciling items to adjust assets and capital additions are the
amounts incurred for the corporate headquarters building, which is not included
in segment information. None of the other adjustments are significant.

11. 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 January 1, 1999, January 2, 1998, and January 3, 1997, which amounted to
$3,000, $250,000, and $691,000, 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.

12. Stockholders' equity:
         In October 1998, the Company extended its stock repurchase program for
an additional twelve months and increased the number of shares eligible for
purchase from 3,000,000 to 4,000,000. From the inception of the program to
January 1, 1999, the Company has repurchased 3,000,300 shares at a cost of
$26,282,000, or an average cost of $8.76 per share. The Company paid for these
purchases out of available cash.

         In fiscal 1997, the Company's Board of Directors voted to increase the
number of authorized shares of common stock from 20 million shares to 40 million
shares. On June 4, 1996, the Board of Directors of the Company voted to approve
a 3-for-2 stock split of the Company's common stock, payable in the form of a
50% stock dividend on July 13, 1996 to stockholders of record on June 19 1996.
The stock split resulted in one additional share of common stock being issued
for each two shares of common stock issued and outstanding on the record date.
The par value of the common stock remained unchanged at $.0001 per share. Cash
was paid in lieu of issuing fractional shares. All share and per share amounts
have been retroactively restated to reflect this split.

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
January 1, 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.

<PAGE>   30

14. Pending Accounting Pronouncements:
         In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. This statement requires
capitalization of external direct costs of materials and services; payroll and
payroll-related costs for employees directly associated; and interests costs
during development of computer software for internal use (planning and
preliminary costs should be expensed). Also, capitalized costs of computer
software developed or obtained for internal use should be amortized on a
straight-line basis unless another systematic and rational basis is more
representative of the software's use. This statement is effective for financial
statements for fiscal years beginning after December 15, 1998. The Company will
adopt the provisions of SOP 98-1 in fiscal 1999 and does not believe the effect
of adoption will be material to the consolidated financial statements.

15.      Summary of Unaudited Quarterly Financial Data: 
         Unaudited quarterly financial information is as follows:

<TABLE>
<CAPTION>
                                                         Quarter Ended                         Year Ended
                                  ---------------------------------------------------------  -------------    
                                      April 3,        July 3,     October 2,     January 1,     January 1,
                                          1998           1998           1998           1999           1999
                                  ------------   ------------   ------------   ------------  -------------                        
<S>                               <C>            <C>            <C>            <C>           <C>          
Net revenues                      $ 75,072,000   $ 74,149,000   $ 82,120,000   $ 75,623,000  $ 306,964,000
Gross profit                        12,395,000     15,567,000     14,369,000     12,963,000     55,294,000
Provision for income taxes           1,516,000      2,241,000      1,419,000        913,000      6,089,000
Income before cumulative
  effect of accounting change        2,453,000      3,889,000      2,338,000      1,123,000      9,803,000
Net income                           2,453,000      3,889,000      2,338,000        616,000      9,296,000
Income before cumulative
    effect of accounting change
    per share:
         Basic                    $       0.18   $       0.28   $       0.18   $       0.09  $        0.73
         Diluted                  $       0.17   $       0.28   $       0.18   $       0.09  $        0.72
Weighted average number
 of common shares:
         Basic                      13,989,296     13,810,326     13,296,029     12,667,024     13,440,607
         Diluted                    14,093,491     13,943,830     13,341,276     12,707,274     13,647,216

</TABLE>

<TABLE>
<CAPTION>
                                                          Quarter Ended                         Year Ended
                                  ---------------------------------------------------------  -------------       
                                      April 4,        July 4,     October 3,     January 2,     January 2,
                                          1997           1997           1997           1998           1998
                                  ------------   ------------   ------------   ------------  -------------                        
<S>                               <C>            <C>            <C>            <C>           <C>          
Net revenues                      $ 79,246,000   $ 76,373,000   $ 75,737,000   $ 65,453,000  $ 296,809,000
Gross profit                        12,865,000     11,556,000     12,095,000      9,573,000     46,089,000
Provision for income taxes           2,315,000      1,202,000      2,234,000      1,341,000      7,092,000
Net income                           3,783,000      1,837,000      3,606,000      2,149,000     11,375,000
Net income per share:
         Basic                    $       0.25   $       0.12   $       0.25   $       0.15  $        0.76
         Diluted                  $       0.24   $       0.12   $       0.24   $       0.15  $        0.75
Weighted average number 
 of common shares:
         Basic                      15,437,801     15,352,116     14,693,233     14,529,958     15,002,006
         Diluted                    15,567,433     15,438,783     14,822,184     14,611,507     15,129,530

</TABLE>
<PAGE>   31


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
January 1, 1999 and January 2, 1998 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years ended
January 1, 1999, January 2, 1998 and January 3, 1997. 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 generally accepted auditing
standards. 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 January 1, 1999 and January 2, 1998, and the
results of their operations and their cash flows for each of the years ended
January 1, 1999, January 2, 1998 and January 3, 1997, in conformity with
generally accepted accounting principles.

         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 12, 1999


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 generally accepted accounting
principles, appropriate in the circumstances to reflect in all material respects
the consolidated financial position of the Company as of January 1, 1999 and
January 2, 1998, and the consolidated results of operations and cash flows for
each of the years ended January 1, 1999, January 2, 1998, and January 3, 1997.
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 generally accepted auditing standards and their report
appears herein.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
        FINANCIAL DISCLOSURE

        None.

<PAGE>   32

                                    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 June 1, 1999.

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 June 1, 1999.

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 June 1, 1999.

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 June 1, 1999.

                                     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 January 1, 1999 and January 2, 1998.

         Consolidated Statements of Operations for each of the fiscal years
         ended January 1, 1999, January 2, 1998 and January 3, 1997.

         Consolidated Statements of Stockholders' Equity for each of the fiscal
         years ended January 1, 1999, January 2, 1998 and January 3, 1997.

         Consolidated Statements of Cash Flows for each of the fiscal years
         ended January 1, 1999, January 2, 1998 and January 3, 1997.

         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
<PAGE>   33
            
                    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.)
                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.)
              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.)

<PAGE>   34

              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:

                2.3 Asset Purchase Agreement, dated April, 1998, by and between
                    the Registrant, Rainbow Homes, Inc., and the sole
                    stockholder of Rainbow Homes, Inc.
                 21 List of Subsidiaries of the Registrant.
                 23 Consent of Arthur Andersen LLP.
                 27 Financial Data Schedule.
             *  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 1998.


<PAGE>   35
                                  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, President
                                                  and Chief Executive Officer


Date:  March 29, 1999
         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, President,            March 29, 1999
-----------------------------    Chief Executive Officer  
Wendell L. Batchelor             and Director             
                                 

/s/ Johnny R. Long               Executive Vice President        March 29, 1999
-----------------------------    and Director
Johnny R. Long                   


/s/ Keith W. Brown               Executive Vice President,       March 29, 1999
-----------------------------    Chief Financial Officer,
Keith W. Brown                   Treasurer, Secretary
                                 and Director

/s/ Keith O. Holdbrooks          Executive Vice President        March 29, 1999
-----------------------------    and Chief Operating Officer
Keith O. Holdbrooks              and Director


/s/ Paul J. Evanson              Director                        March 29, 1999
-----------------------------
Paul J. Evanson


/s/ Joseph J. Incandela          Director                        March 29, 1999
-----------------------------
Joseph J. Incandela


/s/ Jonathan O. Lee              Director                        March 29, 1999
-----------------------------
Jonathan O. Lee