FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For The Quarter Year Ended September 30, 1995
Commission File Number 0-8585
Dynamic Homes, Inc. (Exact name of registrant as specified in its charter)
Minnesota (State or Other Jurisdiction of Incorporation or Organization)
41-0960127 (IRS Employer Identification No.)
525 Roosevelt Avenue, Detroit Lakes, MN 56501 (Address of principal executive
offices)
(218)-847-2611 (Registrant's Telephone Number Including Area Code)
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
As of September 30, 1995, 2,215,850 common shares, par value, $.10 per share,
were outstanding. On January 7, 1995, the Company implemented a plan to re-
purchase up to 100,000 shares of its outstanding common stock. As of Sep-
tember 30, 1995, a total of 43,080 shares have been repurchased and excluded
from the common shares outstanding.
PART I.
Item 1. Financial Statements
FORM 10 - Q
DYNAMIC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS AND NINE MONTHS
ENDED SEPTEMBER 30, 1995 & 1994
(Unaudited)
Three Months Nine Months
09/30/95 09/30/94 09/30/95 09/30/94
-------- -------- -------- --------
Revenues
Single-Family 2,424,000 2,910,000 5,331,000 6,113,000
Multi-Family/Commercial 798,000 650,000 1,705,000 1,689,000
Other 110,000 80,000 263,000 224,000
Transportation 197,000 219,000 449,000 489,000
--------- --------- --------- ---------
Total Revenues - Net 3,529,000 3,859,000 7,748,000 8,515,000
Cost of Sales
Materials 1,767,000 2,047,000 3,939,000 4,589,000
Labor 291,000 300,000 691,000 677,000
Overhead 431,000 383,000 912,000 829,000
Transportation 210,000 202,000 526,000 556,000
--------- --------- --------- ---------
Total Cost of Sales 2,699,000 2,932,000 6,068,000 6,651,000
Gross Profit 830,000 927,000 1,680,000 1,864,000
Operating Expenses
Marketing 73,000 110,000 240,000 289,000
Administration 164,000 162,000 504,000 472,000
--------- --------- --------- ---------
Total Operating Expenses 237,000 272,000 744,000 761,000
Operating Income 593,000 655,000 936,000 1,103,000
--------- --------- --------- ---------
Other (Income) Expense
Interest Expense 4,000 6,000 14,000 26,000
Other, Net (6,000) (7,000) (41,000) (32,000)
--------- --------- -------- --------
Total Other (Income) Expense (2,000) (1,000) (27,000) (6,000)
Income Before Taxes 595,000 656,000 963,000 1,109,000
Income Tax (Provision) Benefit (238,000) (264,000) (385,000) (449,000)
--------- --------- --------- ---------
Net Income 357,000 392,000 578,000 660,000
========= ========= ========= =========
Earnings Per Common Share 0.16 0.18 0.26 0.30
===== ===== ===== =====
Weighted Ave. No. of Shares
Outstanding per Period 2,215,900 2,200,900 2,205,200 2,184,300
========= ========= ========= =========
Dividends per Common Share None None None None
See notes to condensed consolidated financial statements.
FORM 10 - Q
DYNAMIC HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1995 & DECEMBER 31,1994
(Unaudited)
09/30/95 12/31/94
-------- --------
ASSETS
CURRENT ASSETS:
Cash 133,000 607,000
Accounts Receivable, Less Allowance
for Doubtful Accounts, Pledged 889,000 933,000
Inventories Pledged (Note 2) 1,920,000 1,464,000
Prepaid Expenses 65,000 24,000
Deferred Income Taxes (Note 4) 80,000 80,000
--------- ---------
Total Current Assets 3,087,000 3,108,000
OTHER ASSETS:
Other Assets 5,000 14,000
Shagawa Resort, Inc. (Note 5)
Contingency Funds 50,000 0
Construction in Progress 1,351,000 0
--------- ---------
Total Other Assets 1,406,000 14,000
PROPERTY, PLANT & EQUIPMENT, at:
Cost - Pledged in Part 2,393,000 2,349,000
Less - Accumulated Depreciation (1,467,000) (1,391,000)
--------- ---------
Net Property, Plant & Equipment 926,000 958,000
Total Assets 5,419,000 4,080,000
========= =========
LIABILITIES
CURRENT LIABILITIES:
Notes Payable 0 2,000
Current Portion - Long-Term Debt 40,000 30,000
Accounts Payable 553,000 407,000
Customer Deposits 311,000 247,000
Accrued Expenses
Salaries, Wages, Vacations 175,000 212,000
Taxes, Other than Income 126,000 53,000
Warranty 69,000 65,000
Other 51,000 111,000
Income Taxes 175,000 14,000
--------- ---------
Total Current Liabilities 1,500,000 1,141,000
LONG - TERM DEBT: (Note 6)
Less Current Portion Included Above 641,000 115,000
DEFERRED INCOME TAXES (Note 4) 30,000 30,000
-------- ---------
Total Liabilities 2,171,000 1,286,000
STOCKHOLDERS' EQUITY
Common Stock, Par Value $.10 Per Share
Authorized, 5,000,000 Shares; Issued and
Outstanding, 2,215,850 in 1995; 2,200,930
in 1994 226,000 223,000
Paid-in Capital in Excess of Par 134,000 117,000
Retained Earnings 3,032,000 2,454,000
Treasury Stock - 43,080 Shares (144,000) 0
--------- ---------
Total Stockholders' Equity 3,248,000 2,794,000
Total Liabilities & Stockholders' Equity 5,419,000 4,080,000
========= =========
See notes to condensed consolidated financial statements.
FORM 10 - Q
DYNAMIC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995 & 1994
(Unaudited)
09/30/95 09/30/94
-------- --------
Cash Flows From Operating Activities
Net Income (Loss) 578,000 660,000
Adjust to Reconcile Net Income or Loss
Provided by (Used in) Operating Activities:
Depreciation 99,000 79,000
Provision for Doubtful Accounts 4,000 4,000
(Gain) Loss on Sale of Property & Equipment (1,000) (5,000)
Change in Assets & Liabilities:
(Increase) Decrease in Receivables 40,000 (77,000)
(Increase) Decrease in Inventories (456,000) (810,000)
(Increase) Decrease in Prepaid Expenses (41,000) (38,000)
(Increase) Decrease in Deferred Income Tax 0 175,000
(Increase) Decrease in Other Assets 9,000 226,000
Increase (Decrease) in Accounts Payable 146,000 332,000
Increase (Decrease) in Customer Deposit 64,000 202,000
Increase (Decrease) in Accrued Expenses (20,000) 98,000
Increase (Decrease) in Income Tax Payable 161,000 0
-------- ---------
Net Cash Provided by (Used in) Operating Activities 583,000 846,000
Cash Flows From Investing Activities
Investment - Shagawa Resort (1,401,000) 0
Proceeds From Sale of Property & Equipment 3,000 38,000
Purchase of Property & Equipment (69,000) (343,000)
Purchase of Treasury Stock (144,000) 0
--------- ---------
Net Cash Provided by (used in) Investing
Activities (1,611,000) (305,000)
Cash Flows From Financing Activities
Proceeds From Sale of Common Stock 20,000 41,000
Net Borrowings (Payments) on Revolving Credit
Agreements & Other Short-Term Financing (2,000) 18,000
Principal Payments on Long-Term Borrowings
Including Industrial Revenue Bonds (32,000) (67,000)
Proceeds From Installment Contract 17,000 0
Proceeds From Long-Term Borrowings -
Shagawa Resort, Inc. 551,000 0
--------- --------
Net Cash Provided by (Used in) Financing
Activities 554,000 (8,000)
--------- --------
Increase (Decrease) in Cash and Equivalents (474,000) 533,000
Cash and Equivalents
Beginning 607,000 53,000
--------- --------
Supplemental Disclosures of Cash Flow
Information
Cash Payments for:
Income Taxes 224,000 9,000
-------- --------
Interest 12,000 26,000
-------- --------
See notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. UNAUDITED STATEMENTS
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of the Company as of September 30, 1995, and December 31,
1994, and the results of operations and cash flows for the nine months ended
September 30, 1995, and September 30, 1994.
Note 2. INVENTORIES
During interim accounting periods, the Company uses the standard cost method of
determining cost of sales and inventory levels. Cost of sales values are
determined monthly based on standards for materials, labor and overhead by
product mix. Deviations from these standards result in adjustments of the
monthly cost of sales amount. Periodic physical inventories are taken during
the fiscal year to determine actual inventory and cost of sales. A physical
inventory was taken during the second quarter of 1995, the results of which
were reflected in the cost of sales and inventory levels reported. No physical
inventory was taken during the third quarter of 1995.
The Breakdown of Inventories is as follows:
09/30/95 09/30/94
-------- --------
Finished Goods 983,000 735,000
Work In Process 181,000 124,000
Raw Materials 756,000 857,000
--------- ---------
Total Inventories 1,920,000 1,716,000
========= =========
Note 3. BACKLOG OF ORDERS
The Company's order backlog consists of completed units awaiting delivery,
current production, and orders scheduled for future production. As of
September 30, 1995, and September 30, 1994, the Company's backlog of unfilled
orders was approximately $ 4,801,000 and $ 5,462,000, respectively. As of
December 31, 1994, the Company's backlog of unfilled orders was $ 3,238,000.
The September 30, 1995, backlog consists of approximately $ 720,000 of single-
family housing scheduled for delivery during the first two quarters of 1996.
Likewise, the September 30, 1994, backlog consisted of approximately
$ 1,645,000 of product scheduled for delivery during the first two quarters of
1995. However, inclement weather may cause delays in the delivery and setting
of units which would adversely impact revenue and earnings.
Note 4. DEFERRED INCOME TAXES
Deferred income taxes relate primarily to differences between the basis of
receivables, property and equipment, accrued expenses and book/tax inventory
adjustments for financial and income tax reporting. The deferred tax assets
and liabilities represent future tax return consequences of those differences,
which will either be taxable or deductible when the assets and liabilities are
recovered and settled.
Note 5. SHAGAWA RESORT, INC.
On September 28, 1995, the Company purchased all of the outstanding shares of
Shagawa Resort, Inc., which was the sole owner of a Holiday Inn Sunspree Motel
under construction in Ely, Minnesota. It is anticipated that construction will
be completed during the first quarter of 1996. The Motel will consist of
approximately 54,000 square feet of buildings, consisting of 61 units, and
approximately 15 acres of land. The purchase price of the Motel and the land
will approximate $ 2,500,000 consisting of $ 778,141 in cash and a $ 1,700,000
mortgage assumption to NorWest Bank Minnesota Mesabi N.A. of which $ 952,000 is
guaranteed by a Small Business Administration loan PFA debenture.
The Company simultaneously entered into a management agreement with Northland
Adventures Ltd., to manage the Motel until December 15, 1997. The Company also
entered into a Stock Purchase and Sale Agreement and Option to Repurchase Stock
with Northland Adventures Minnesota Ltd. that may be exercised on or before
December 15, 1997. Upon exercise of the option, the price paid to the Company
would be an amount equal to the sum of:
1. Cash investment plus any non-refunded balance of a contingency fund.
2. An amount equal to $ 2,000 times the number of months elapsed from
the commencement of operation of the Motel to the date of repur-
chase of the Motel.
3. Payment in full or assumption of the loans to NorWest Bank Minnesota
Mesabi N.A. and Small Business Administration.
Note 6. LONG-TERM DEBT
Long-Term Debt (net of current maturities) consists of:
09/30/95 12/31/94
-------- --------
Industrial Development Bonds of Detroit
Lakes, MN 80,000 115,000
Other Notes and Contracts Payable 10,000 0
Construction Loan Agreement covering Shagawa
Resort project 551,000 0
-------- --------
Total Long-Term Debt 641,000 115,000
======== ========
DYNAMIC HOMES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION & ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Three Months Ended September 30, 1995 and 1994
NET SALES:
The Company's revenue for the three months ended September 30, 1995, was
$ 3,529,000 as compared to $ 3,859,000 for the year earlier period. Multi-
family commercial revenues increased by $ 148,000, single-family revenues
decreased by $ 486,000 and overall revenues decreased by $ 330,000 from the
corresponding 1994 period. The reduction in 1995 single-family revenue
primarily reflects the softness in new order activity associated with mortgage
rate uncertainty during the second and beginning stages of the third quarter of
1995. The projected revenue base for the fourth quarter has the potential to
be relatively strong and consists primarily of single-family housing units.
However, transportation and setting delays may result from inclement weather
prohibiting unit movements.
The Company's order backlog at September 30, 1995, was $ 4,801,000 as compared
to $ 5,462,000 at September 30, 1994, and $ 3,238,000 at 1994 year-end. The
backlog total at September 30, 1994, included approximately $ 1,645,000 of
single-family and multi-family commercial orders that were scheduled for
production and delivery during the first two quarters of 1995. The backlog
total at September 30, 1995, includes approximately $ 720,000 of single-family
housing units scheduled for delivery during the first two quarters of 1996.
Since approximately 85% of the September 30, 1995, backlog is available for
delivery and setting by year-end, the potential exists for a relatively strong
fourth quarter. However, delayed deliveries of completed units caused by
inclement weather conditions which restrict the transportation and setting of
units would have an adverse impact on fourth quarter revenue and earnings.
Revenues are not recognized or recorded until a unit has been delivered and
set.
COST OF SALES:
The Company's gross profit (including transportation revenue and expenses) of
$ 830,000 for the third quarter of 1995 is down $ 97,000 from the same period
of 1994. The respective gross margin percents are 23.5% and 24.0%. However,
the gross profit percentage on product (excluding transportation revenue and
expense) during the third quarter of 1995 improved to 25.3% versus 25.0% for
the corresponding 1994 period. The improved gross margin percentage for 1995
is related to more stable material costs for wood-related materials. To date,
1995 has not experienced the volatility in material costs associated with the
1994 period. Consequently, this year the Company does not have any surcharge
in effect to offset rising material costs.
OPERATING EXPENSES:
The Company's 1995 third quarter operating expenses, which include trans-
portation, marketing and administrative costs totaled $ 447,000 versus
$ 474,000 for 1994, or a decrease of $ 27,000. Transportation expenses
increased by $ 8,000 due to the additional costs associated with transporting
units to the outer ranges of the marketing territory. Marketing expenses
decreased by $ 37,000 due to a reduced revenue base and the realization of
credits from several suppliers for co-op related advertising programs.
Administrative costs remained stable for both the 1995 and 1994 third quarters.
OPERATING INCOME:
Operating income of $ 593,000 for the three months ending September 30, 1995,
decreased by $ 62,000 from the $ 655,000 level at September 30, 1994. The lower
1995 operating income resulted from a lower revenue base during the quarter.
Operating income percentages are similar for each of the periods. The recent
acquisition of the Stock of Shagawa Resort, Inc. had no impact on third
quarter operating results.
NET NON-OPERATING INCOME/EXPENSE:
Non-operating income for the third quarter of 1995 was $ 2,000 as compared to
$ 1,000 for 1994. Due to the Company's strong cash position, interest expense
for each of the periods was minimal. Other income for both periods is pri-
marily related to cash generated interest income.
FEDERAL AND STATE INCOME TAXES:
During the third quarter of 1995 and 1994, the Company recorded estimated in-
come tax provisions of $ 238,000 and $ 264,000, respectively. During the third
quarter of 1994, the Company continued to utilize loss carryforwards. However,
all loss carryforwards were completely utilized as of year-end, 1994. Conse-
quently, the Company was obligated to pay estimated income taxes at the normal
statutory rate during the third quarter of 1995.
NET INCOME:
Net income for the third quarter of 1995 was $ 357,000 or $ .16 per share. Net
income for third quarter of 1994 was $ 392,000, or $ .18 per share.
DYNAMIC HOMES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION & ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Nine Months Ended September 30, 1995 and 1994
NET SALES:
The Company's revenue for the nine month period ended September 30, 1995, was
$ 7,748,000 as compared with $ 8,515,000 for 1994 or a decrease of $ 767,000.
Multi-family/commercial revenues increased by $ 16,000 during the first nine
months of 1995. However, single-family revenue for 1995 decreased by $ 782,000
while transportation revenue also decreased proportionally by $ 40,000. Retail
and miscellaneous revenues for 1995 increased by $ 39,000. New order activity
was sporadic during the first two quarters of 1995 which seemed to reflect
potential homebuyer's concerns with the higher levels of mortgage interest
rates. However, during the third quarter, home mortgage rates stabilized and
new order activity rebounded moderately. At the conclusion of the third
quarter, the Company signed a contract to construct 16 single-family housing
units. Based on the Company's backlog and favorable climatic conditions, the
fourth quarter of 1995 has the potential for a relatively strong quarter for
the single-family housing sector.
COST OF SALES:
The Company's gross profit (including transportation revenue and expense) was
$ 1,680,000 for the first nine months of 1995 as compared to $ 1,864,000 for
1994. Gross profit percentages for the first nine months of 1995 were 21.7%
versus 21.9% for 1994. When transportation revenue and expense are excluded,
the gross profit on products are identical at 24.1% for each period.
OPERATING EXPENSES:
The Company's 1995 operating expenses, which includes transportation, marketing
and administration costs, decreased to $ 1,270,000 or $ 47,000 less than the
corresponding nine months of 1994. Transportation expenses decreased by
$ 30,000 due to the reduction in units set during the first nine months of
1995. Marketing expenses for 1995 decreased by $ 49,000 due to the realization
of several supplier-related co-op advertising programs and a reduction in
volume-related Builder/Dealer promotional programs. Administrative costs for
1995 increased by $ 32,000 over 1994. The majority of the increase in admini-
strative expenses relate to NASDAQ listing fees and shareholder activities.
OPERATING INCOME:
The Company's operating income for the first nine months of 1995 was $ 936,000
as compared to $ 1,103,000 for 1994. The decrease of $ 167,000 relates to a
reduced revenue base and a small decrease in volume-related utilization of
plant labor and overhead.
NET NON-OPERATING INCOME/EXPENSE:
The Company's net non-operating activities resulted in additional income of
$ 27,000 for 1995 versus $ 6,000 for 1994. The Company's strong cash position
during 1995 reduced the short-term borrowing requirements. Consequently,
interest expense for 1995 decreased by $ 12,000 from 1994. In addition, the
Company also realized a higher level of interest-related income during the
first nine months of 1995.
FEDERAL AND STATE INCOME TAXES:
During the first nine months of both 1995 and 1994, the Company recorded esti-
mated income tax provisions of $ 385,000 and $ 449,000 respectively. During
the first three quarters of 1994, the Company continued to utilize loss carry-
forwards. However, all loss carryforwards were completely utilized as of year-
end 1994. Consequently, the Company was obligated to pay estimated income
taxes at the normal statutory rate during the first three quarters of 1995.
NET INCOME:
Net income for the first three quarters of 1995 was $ 578,000 versus $ 660,000
for the corresponding three quarters of 1994. Earnings per share for 1995 de-
creased by $ .04 per share from $ .30 per share for 1994 to $ .26 per share for
1995.
FINANCIAL CONDITION:
As of September 30, 1995
The Company's working capital was a positive $ 1,587,000 at September 30, 1995,
versus $ 1,695,000 at September 30, 1994, and $ 1,967,000 at December 31, 1994.
The current ratio for September 30, 1995, was 2.1 to 1.0 which is similar to
the 2.2 to 1.0 at September 30, 1994, but down from 2.7 to 1.0 at December 31,
1994. The Company's 1995 cash flow from operations was a positive $ 583,000 as
compared to $ 846,000 for the first three quarters of 1994. During the first
three quarters of 1995, cash outflows were required for the build-up of inven-
tory (finished goods), capital equipment, purchase of treasury stock, and the
Company's investment interests in completing the construction of the Shagawa
Resort project. The increase in inventory, capital assets (including the
Shagawa Resort project) and treasury stock acquisitions was feasible by util-
izing the Company's 1994 year-end cash and cash equivalents position in con-
junction with the cash flows generated by the Company's profitability, supplier
payment terms, pre-payment on customer units and long-term borrowings.
Long-term debt, net of current maturities, increased from $ 115,000 at 1994
year-end to $ 641,000 at September 30, 1995. Long-term debt consists primarily
of Industrial Revenue Bonds and the Shagawa Resort project. The ratio of long-
term debt to stockholders' equity changed from .04 to 1.0 at year-end 1994 to
.20 to 1.0 at September 30, 1995. Stockholders' equity (net of treasury stock)
increased $ 715,000 to $ 3,248,000 at September 30, 1995, from $ 2,533,000 at
September 30, 1994, and up $ 454,000 (net of treasury stock) from $ 2,794,000
at December 31, 1994.
Dynamic Homes, Inc. has available a short-term line of credit which is
collateralized by inventories and receivables. The credit available is based
on specified percentages of inventories and receivables to a maximum of
$ 1,000,000 and matures on April 15, 1996. As of September 30, 1995, the Com-
pany did not have any outstanding borrowings under its line of credit agree-
ment. However, as of September 30, 1995, the Company had two standby letters
of credit totaling $ 262,230 which reduced the available line of credit
accordingly.
The Company has continued to meet its obligations on all long-term debt.
Management believes internally generated cash and short-term borrowings on
its existing credit line should provide adequate funds supporting Company oper-
ations and scheduled capital additions during the remainder of 1995 and early
stages of 1996.
PART II.
Items 1, 2, 3, 4, and 5 are omitted as each is either not applicable or the
answer to the item is negative.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended September 30,
1995. However, a Form 8-K was filed on October 12, 1995, regarding the acqui-
sition of the outstanding shares of Shagawa Resort, Inc., which was the sole
owner of a Holiday Inn Sunspree Motel under construction in Ely, Minnesota.
Reference discussion under Note 5. Shagawa Resort, Inc.
SIGNATURE
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Registrant Dynamic Homes, Inc.
VERN MUZIK (President)
Dated: November 14, 1995
