FORM 10-Q

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington DC 20549

 

(Mark One)

ý                                         Quarterly Report Pursuant to Section 13 or

15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2002.

 

- or -

 

o                                        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 0-5555

LIBERTY HOMES, INC.

(Exact name of registrant as specified in its charter)

 

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 ý  No o

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

 

 

INDEX

 

Part I - Consolidated Financial Information (Unaudited)
General
Item 1.	Consolidated Financial Statements - Liberty Homes, Inc.
	Consolidated Balance Sheet, as of June 30, 2002 and December 31, 2001
	Consolidated Statement of Income, for the three months ended June 30, 2002 and 2001
	Consolidated Statement of Income, for the six months ended June 30, 2002 and 2001
	Consolidated Statement of Cash Flows for the six months ended June 30, 2002 and 2001
	Notes to Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Part II - Other Information
Item 6.	Exhibits and Reports on Form 8-K
	Signature

 

 

PART I - CONSOLIDATED FINANCIAL INFORMATION

 

General

The consolidated financial statements and footnotes thereto listed in the Index on page 2 of this report have been prepared using generally accepted accounting principles applied on a basis consistent with 2001.  The results of operations for the interim period presented are not necessarily indicative of results to be expected for the year.  The information furnished herein reflects all adjustments (consisting of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods.

 

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LIBERTY HOMES, INC.

CONSOLIDATED BALANCE SHEET

as of June 30, 2002 and December 31, 2001

 

ASSETS		June 30, 2002			December 31, 2001
Current assets:
Cash and cash equivalents		$	4,298,000		$	7,223,000
Short term investments		300,000			300,000
Receivables		10,780,000			10,506,000
Inventories		12,319,000			12,567,000
Deferred tax asset		2,338,000			2,820,000
Income taxes refundable		894,000			362,000
Prepayments and other		2,116,000			2,248,000
Total current assets		33,045,000			36,026,000
Property, plant and equipment:
Land		2,257,000			2,412,000
Buildings and improvements		29,499,000			29,549,000
Machinery and equipment		22,290,000			21,840,000
		54,046,000			53,801,000
Less accumulated depreciation		29,010,000			28,328,000
		25,036,000			25,473,000
Total assets		$	58,081,000		$	61,499,000
LIABILITIES
Current liabilities:
Accounts payable		$	2,951,000		$	2,651,000
Floorplan notes payable		1,955,000			2,383,000
Accrued compensation & payroll taxes		1,297,000			1,055,000
Other accrued liabilities		5,471,000			6,906,000
Total current liabilities		11,674,000			12,995,000
Deferred income taxes		2,450,000			2,450,000
Minority interest in consolidated subsidiaries		1,022,000			1,097,000
Contingent liabilities (see notes)		—			—
SHAREHOLDERS’ EQUITY
Capital Stock:
Class A, $1 par value
Authorized-7,500,000 Shares
Issued & outstanding-2,086,000 in 2002 & 2,088,000 in 2001		2,086,000			2,088,000
Class B, $1 par value
Authorized-3,500,000 Shares
Issued & outstanding-1,659,000 in 2002 & 1,665,000 in 2001		1,659,000			1,665,000
Other capital		83,000			83,000
Retained earnings		39,107,000			41,121,000
		42,935,000			44,957,000
Total liabilities and shareholders’ equity		$	58,081,000		$	61,499,000

 

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LIBERTY HOMES, INC.

 

CONSOLIDATED STATEMENT OF INCOME

 

for the three months ended June 30, 2002 and 2001

 

 

		2002			2001
Net sales		$	24,668,000		$	31,577,000
Cost of sales		21,001,000			26,738,000
Gross profit		3,667,000			4,839,000
Selling, delivery, general and administrative expenses		4,497,000			4,656,000
Operating income (loss)		(830,000		)	183,000
Interest expense		(46,000		)	(96,000		)
Interest and other income		104,000			112,000
Income (loss) before minority interest and income taxes		(772,000		)	199,000
Minority interest		47,000			(17,000		)
Income tax benefit (expense)		263,000			(75,000		)
Net income (loss)		$	(462,000	)	$	107,000
Net income (loss) per outstanding Common Share — basic and fully diluted		$	(.12	)	$	.03
Weighted average shares outstanding		3,745,000			3,753,000
Cash dividend per share:
Class A Common Stock		$	.07		$	.07
Class B Common Stock		$	.07		$	.07

 

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LIBERTY HOMES, INC.

 

CONSOLIDATED STATEMENT OF INCOME

 

for the six months ended June 30, 2002 and 2001

 

 

		2002			2001
Net sales		$	46,567,000		$	56,338,000
Cost of sales		40,293,000			48,411,000
Gross profit		6,274,000			7,927,000
Selling, delivery, general and administrative expenses		8,612,000			9,517,000
Operating loss		(2,338,000		)	(1,590,000		)
Interest expense		(92,000		)	(226,000		)
Interest and other income		130,000			238,000
Loss before minority interest and income taxes		(2,300,000		)	(1,578,000		)
Minority interest		75,000			(23,000		)
Income tax benefit		782,000			594,000
Net loss		$	(1,443,000	)	$	(1,007,000	)
Net loss per outstanding Common Share — basic and fully diluted		$	(.39	)	$	(.27	)
Weighted average shares outstanding		3,747,000			3,753,000
Cash dividend per share:
Class A Common Stock		$	.14		$	.14
Class B Common Stock		$	.14		$	.14

 

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LIBERTY HOMES, INC.

 

CONSOLIDATED STATEMENT OF CASH FLOWS

 

for the six months ended June 30, 2002 and 2001

		2002			2001
Cash flows provided by (used in) operating activities:
Net loss		$	(1,443,000	)	$	(1,007,000	)
Adjustment to reconcile net loss to net cash used in operating activities
Depreciation		1,036,000			1,227,000
Minority interest		(75,000		)	23,000
Gain of sale of fixed assets		(61,000		)	—
Net value of retail center assets written off		—			151,000
Changes in assets and liabilities:
Receivables		(274,000		)	(576,000		)
Income taxes payable/receivable		(50,000		)	2,994,000
Inventories		248,000			1,844,000
Prepayments and other		132,000			(50,000		)
Accounts payable		300,000			255,000
Other current liabilities		(1,193,000		)	(1,610,000		)
Net cash used in operating activities		(1,380,000		)	3,251,000
Cash flows provided by (used in) investing activities
Additions to property, plant and equipment		(862,000		)	(287,000		)
Proceeds from sale of fixed assets		324,000			—
Redemption of short-term investments		—			50,000
Net cash used in investing activities		(538,000		)	(237,000		)
Cash flows provided by (used in) financing activities
Cash dividends paid		(525,000		)	(525,000		)
Proceeds from notes payable		481,000			2,833,000
Payments of notes payable		(909,000		)	(5,056,000		)
Retirement of common stock		(54,000		)	—
Net cash used in financing activities		(1,007,000		)	(2,748,000		)
Net increase (decrease) in cash and cash equivalents		(2,925,000		)	266,000
Cash and cash equivalents at beginning of period		7,223,000			4,896,000
Cash and cash equivalents at end of period		$	4,298,000		$	5,162,000
Supplemental disclosures of cash flow information.
Cash received for income taxes		$	749,000		$	3,445,000
Cash paid for interest expense		92,000			223,000

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SHORT TERM INVESTMENTS:

 

Short-term investments consist primarily of certificates of deposits with original maturities greater than 90 days.

 

 

INVENTORIES:

 

Inventories are stated at the lower of cost or market, with cost determined on a first-in, first-out basis.  Inventories at June 30, 2002 consist of:

 

 

 

NOTES PAYABLE:

 

               At June 30, 2002, the Company had the following notes payable:

 

 

 

CONTINGENT LIABILITIES:

 

Repurchase Obligations

 

               The Company is contingently liable under terms of repurchase agreements with various financial institutions which provide for the repurchase of its homes sold to dealers under floor plan financing arrangements upon dealer default.  The Company’s exposure to loss under such agreements is reduced by the resale of the repurchased home.  The Company believes any losses incurred under outstanding repurchase agreements in

 

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excess of the accruals established as of June 30, 2002 will not have a significant impact on the financial condition of the Company.  However, any substantial increases in dealer defaults after June 30, 2002 may cause the Company to incur additional losses due to repurchase activity.

 

 

REVENUE RECOGNITION:

 

The Company recognizes revenue when the product is shipped to independent dealers.

 

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Results of Operations

 

The environment in which the Company currently operates continues to suffer from many challenges including wholesale and retail credit tightening, pricing pressure and competition from repossessed homes, dealer failures and a somewhat unstable national economy.  The impact of these conditions has resulted in lower sales for the Company during the second quarter of 2002 compared to 2001.

 

Net sales for the second quarter of 2002 were $24,668,000, a decrease of $6,909,000 from the same quarter of 2001.  Practically all the Company’s sales are to independent dealers and developers.  This customer base struggles to find replacements for inventory financing as the traditional sources continue to drop out of the inventory financing business.  As these sources dry up, dealers are forced to liquidate inventory and then cannot find an equal amount of credit from other sources to replace inventory.  Credit standards for retail buyers are tighter, chattel mortgages are less available and traditional real estate mortgage financing is slow to be put in place.  Therefore, dealers are unable to

 

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find financing for many interested buyers.  Both of these credit conditions as well as competition from repossessed homes has resulted in lower orders to the Company.

 

Lower sales have trimmed gross profit and income.  Gross profit for the second quarter of 2002 was $3,667,000, a $1,172,000 drop from the same quarter in 2001. Although the Company was able to reduce its other expenses, the reduction of gross profit could not be covered and a net loss of $462,000 resulted for the second quarter of 2002.

 

 

Liquidity and Capital Resources

 

As normal from prior years, liquidity and capital resources dropped during the six months from the Company’s position at December 31, 2001.  Cash, cash equivalents and short term investments as of June 30, 2002 and December 31, 2001 were $4,598,000 and $7,523,000, respectively.  Working capital as of June 30, 2002 and December 31, 2001 was $21,371,000 and $23,031,000, respectively.  Expenditures for operations were the main uses of capital resources during the quarter.  The Company anticipates that cash flow from operations and credit arrangements currently in place will be sufficient to meet the Company’s foreseeable requirements.

 

 

Outlook and Risk Factors

 

                As indicated in the Results of Operations section, many factors are challenging the Company and the manufactured housing industry.  Credit problems at both the wholesale and retail levels will continue to have adverse effects until financial institutions provide more capital.  Repossessed home inventory still remains high and, coupled with discounts and less restrictive underwriting of loans for these repossessed homes, new home orders

 

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will suffer.

 

Since the Company produces only to dealer orders and sales backlogs are traditionally short, the order activity at the Company is indicative of the day to day retail sales activity of its products.  Changes affecting retail customer demand, such as cost, availability of credit and unemployment, have an immediate effect on the Company’s operations.

 

It is a common practice for manufactured housing producers to participate in dealer financing programs which require the manufacturer to repurchase homes which remain unsold and in dealer inventory within a certain time period, usually 12 to 18 months following delivery to the dealer, if the dealer defaults on its financing obligations.  When initiated, this repurchase obligation brings homes back into the wholesale market and may result in some discounting as the units are resold.  Currently, the industry has a significant level of these repurchased homes as well as homeowner repossessions that will compete with future orders to factories for new homes.  The Company believes the reserves accrued at June 30, 2002 are adequate for known repurchase requirements that it may have at that date.  However, any substantial increases in dealer defaults after June 30, 2002 may cause the Company to incur additional losses due to repurchase activity.

 

 

Forward Looking Information

 

The discussion above contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements include statements regarding industry and company outlooks and risk factors.  The Company may make other forward looking statements orally or in writing from time to time.  All such forward looking

 

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statements are not guaranties of future events or performance and involve risks and uncertainties.  Actual results may differ materially from those in the forward looking statements as the result of a number of material factors.  These factors include without limitation, the availability of financing credit at both the wholesale and retail level, the availability of a competent workforce, the regulation of the industry at the federal, state and local levels, changes in interest rates, the stability of dealer distribution networks, unanticipated results in pending legal proceedings and the condition of the economy and its effect on consumer confidence.

 

PART II - OTHER INFORMATION

 

 

 

Item 6.  Exhibits and Reports on Form 8–K

 

No reports on Form 8–K for April, May or June, 2002 have been filed.

 

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SIGNATURE

 

Pursuant to the requirements 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.

 

 

Dated  August 14, 2002

 

CERTIFICATION

By signing below, each of the undersigned officers hereby certifies pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his or her knowledge, (i) this report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in this report fairly represents, in all material aspects, the financial condition and results of operations of Liberty Homes, Inc.

 

Signed this 14^th day of August, 2002.

 

/s/ MARC A. DOSMANN		/s/ EDWARD J. HUSSEY
(Signature of Authorized Officer)		(Signature of Authorized Officer)
Marc A. Dosmann, VP — CFO		Edward J. Hussey, President
Typed Name & Title		Type Name & Title

 

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