<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
(Mark One) Quarterly Report Pursuant to Section 13 or
X 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 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 0-5555
LIBERTY HOMES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1174256
(State of Incorporation) (IRS Employer Identification No.)
PO BOX 35, GOSHEN, INDIANA 46527
(Address of principal executive offices) (ZIP Code)
(219) 533-0431
(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____
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Shares of Outstanding
Class at November 5, 1999
----- -------------------
<S> <C>
Class A Common Stock, $1.00 par value 2,185,596
Class B Common Stock, $1.00 par value 1,718,559
</TABLE>
1 of 13
<PAGE>
INDEX
<TABLE>
<CAPTION>
PART I - CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED) PAGES
-----
<S> <C> <C>
General 3
Item 1. Consolidated Financial Statements -
Liberty Homes, Inc.
Consolidated Balance Sheet, as of
September 30, 1999 and December 31, 1998 4
Consolidated Statement of Income, for the
three months ended September 30, 1999
and 1998 5
Consolidated Statement of Income, for the
nine months ended September 30, 1999
and 1998 6
Consolidated Statement of Cash Flows for the
nine months ended September 30, 1999
and 1998 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 9-11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
</TABLE>
2
<PAGE>
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 1998. The results of
operations for the interim period presented are not necessarily indicative of
results to be expected for the year. The information included in this report has
not been examined prior to filing by an independent public accountant, and is
therefore, subject to any adjustments which may result from the year-end
examination of the Company's financial statements. 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.
3
<PAGE>
LIBERTY HOMES, INC.
CONSOLIDATED BALANCE SHEET
as of September 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
ASSETS 1999 1998 LIABILITIES 1999 1998
- ------ ---- ---- ----------- ---- ----
<S> <C> <C> <C> <C> <C>
Current assets: Current liabilities:
Cash and cash equivalents $ 9,745,000 $18,441,000 Accounts payable $ 8,740,000 $ 2,699,000
Short term investments 6,535,000 5,300,000 Dividend payable 273,000 277,000
Receivables 20,465,000 9,107,000 Accrued compensation
Inventories 16,045,000 13,171,000 and payroll taxes 3,964,000 2,897,000
Deferred tax asset 2,500,000 2,500,000 Income taxes payable 678,000 1,136,000
Prepayments and other 1,922,000 1,609,000 Other accrued liabilities 11,492,000 12,044,000
------------ ------------- -------------- -----------
Total current assets 57,212,000 50,128,000 Total current liabilities 25,147,000 19,053,000
------------ ------------- -------------- -----------
Deferred income taxes 2,270,000 2,270,000
-------------- -----------
Minority interest in subsidiaries 1,422,000 969,000
-------------- -----------
Contingent liabilities (see notes)
SHAREHOLDERS' EQUITY
Capital Stock:
Class A, $1 par value
Authorized-7,500,000 Shares
Issued & outstanding-
2,185,000 in 1999 &
2,224,000 in 1998 2,185,000 2,224,000
Property, plant and equipment: Class B, $1 par value
Authorized-3,500,000 Shares
Land 1,926,000 1,524,000 Issued & outstanding-
Buildings and improvements 28,177,000 26,662,000 1,719,000 in 1999 &
Machinery and equipment 20,617,000 19,760,000 1,728,000 in 1998 1,719,000 1,728,000
------------ -------------
50,720,000 47,946,000 Other capital 83,000 83,000
Less accumulated depreciation 22,872,000 20,855,000 Retained earnings 52,234,000 50,892,000
------------ ------------ ------------ -----------
27,848,000 27,091,000 Total shareholders' equity 56,221,000 54,927,000
------------ ------------ ------------ -----------
Total liabilities and shareholders'
Total assets $85,060,000 $77,219,000 equity $85,060,000 $77,219,000
============ ============ ============ ===========
</TABLE>
4
<PAGE>
LIBERTY HOMES, INC.
CONSOLIDATED STATEMENT OF INCOME
for the three months ended September 30, 1999 and 1998
------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net sales $ 47,259,000 $ 48,897,000
Cost of sales 41,584,000 42,464,000
------------------- --------------------
Gross profit 5,675,000 6,433,000
Selling, general and administrative
expenses 4,758,000 4,849,000
------------------- --------------------
Operating income 917,000 1,584,000
Interest and other income 269,000 274,000
------------------- --------------------
Income before minority interest
and income taxes 1,186,000 1,858,000
Minority interest in income (102,000) (94,000)
Income tax expense (456,000) (702,000)
------------------- --------------------
Net income $ 628,000 $ 1,062,000
=================== ====================
Share income per outstanding Common
Share - basic and fully diluted $.16 $.27
==== ====
Weighted average shares
outstanding 3,909,000 3,963,000
=================== ====================
Cash dividend per share:
Class A Common Stock $.07 $.07
==== ====
Class B Common Stock $.07 $.07
==== ====
</TABLE>
5
<PAGE>
LIBERTY HOMES, INC.
CONSOLIDATED STATEMENT OF INCOME
for the nine months ended September 30, 1999 and 1998
------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net sales $ 140,742,000 $ 138,103,000
Cost of sales 122,206,000 119,514,000
--------------------- ----------------------
Gross profit 18,536,000 18,589,000
Selling, general and
administrative expenses 14,517,000 14,115,000
--------------------- ----------------------
Operating income 4,019,000 4,474,000
Interest and other income 826,000 754,000
--------------------- ----------------------
Income before minority interest
and income taxes 4,845,000 5,228,000
Minority interest in income (393,000) (221,000)
Income tax expense (1,864,000) (2,039,000)
--------------------- ----------------------
Net income $ 2,588,000 $ 2,968,000
===================== ======================
Share income per outstanding
Common Share - basic and
fully diluted $.66 $.75
==== ====
Weighted average shares
outstanding 3,920,000 3,979,000
===================== ======================
Cash dividend per share:
Class A Common Stock $.21 $.21
==== ====
Class B Common Stock $.21 $.21
==== ====
</TABLE>
6
<PAGE>
LIBERTY HOMES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
for the nine months ended September 30, 1999 and 1998
---------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $2,588,000 $ 2,968,000
Adjustment to reconcile net income
to net cash used in operating activities -
Depreciation 2,017,000 2,063,000
Deferred income taxes -- (52,000)
Minority interest in income 393,000 221,000
Changes in assets and liabilities:
Receivables (11,358,000) (8,393,000)
Inventories (2,874,000) (3,184,000)
Prepayments and other (313,000) (102,000)
Accounts payable 6,041,000 5,313,000
Accrued liabilities 511,000 660,000
Income taxes payable (458,000) 216,000
------------------ -------------------
Net cash used in operating activities (3,453,000) (290,000)
------------------ -------------------
Cash flows used in investing activities
Additions to property, plant and equipment (2,774,000) (2,308,000)
Purchase of short-term investment (1,235,000) (50,000)
------------------ -------------------
Net cash used in investing activities (4,009,000) (2,358,000)
------------------ -------------------
Cash flows provided by (used in) financing activities -
Cash dividends paid (822,000) (833,000)
Minority interest contributed capital 60,000 --
Retirement of common stock (472,000) (487,000)
------------------ -------------------
Net cash used in financing activities (1,234,000) (1,320,000)
------------------ -------------------
Net decrease in cash and cash equivalents (8,696,000) (3,968,000)
Cash and cash equivalents at beginning of period 18,441,000 15,797,000
------------------ -------------------
Cash and cash equivalents at end of period $9,745,000 $ 11,829,000
================== ===================
Supplemental disclosures of cash flow information
cash paid during the period for income taxes $2,324,000 $ 1,925,000
================== ===================
</TABLE>
7
<PAGE>
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, consisting primarily of raw materials, are stated at the
lower of cost or market, with cost determined on a first-in, first-out basis.
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
excess of the accruals established as of September 30, 1999 will not have a
significant impact on the financial condition of the Company.
Other Contingencies
Letters of Credit totaling $500,000 have been issued to the Company's
insurance carriers who have underwritten the Company's insurance programs.
8
<PAGE>
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
Liquidity and Capital Resources
Cash, cash equivalents and short term investments as of September 30,
1999 and December 31, 1998 were $16,280,000 and $23,741,000, respectively.
Working capital as of September 30, 1999 and December 31, 1998 was $32,065,000
and $31,075,000, respectively. The decrease of cash has been caused by accounts
receivable and inventory increases as the Company's operations expand over the
normal year-end base, and by the funding of various property, plant and
equipment projects. Also during the nine months ended September 30, 1999, the
Company repurchased a total of 47,900 shares of common stock under the program
initiated in 1994 and subsequently amended to acquire up to 700,000 shares of
its common stock.
Results of Operations
Net sales for the third quarter of 1999 were $47,259,000, a decrease of
$1,638,000 over the same quarter of 1998. The number of homes sold also
decreased. Net income for the third quarter of 1999 was $628,000, a decrease of
$434,000 from the third quarter of 1998. Increased material costs, particularly
lumber products and gypsum board, which
9
<PAGE>
due to competitive conditions could not be reflected in increased prices, along
with reduced sales, negatively impacted income.
Outlook and Risk Factors
As sales backlogs in the manufactured housing industry are
traditionally short and as dealer inventories do not normally fluctuate
substantially, the orders that the Company receives are indicative of the
day-to-day retail sales activity of its products. Any changes affecting the
desire or ability of retail customers to purchase, such as cost, availability of
credit and unemployment, have an immediate effect on the Company's operations.
Year 2000
Liberty Homes employs several electronic data processing (EDP) systems
for administrative and reporting purposes. In 1995, the Company began a process
to analyze the need to enhance its systems to accommodate planned growth of the
Company and to meet additional management information needs. As the Company
determined the systems it wished to enhance, it also discovered the need to
ensure all of its systems were able to handle year 2000 dates. This Year 2000
(Y2K) compliance issue then became a part of the Company's EDP enhancement
program. In March of 1996, the Company contracted for an overall upgrade of its
EDP system which, among many things, would provide Y2K compliance for a
substantial portion of its EDP systems. This project is complete.
Additionally, the Company has tested and upgraded all of its
information and communication systems hardware for Y2K compliance, installed
software updates containing Y2K compliance code and initiated projects to bring
internally developed
10
<PAGE>
systems into Y2K compliance. Except for some very minor items, the Company has
completed its Y2K remediation efforts. The Company has adequate resources to
address these remaining items and plans to complete them by December 15, 1999.
It believes the failure to correct them by that time would cause no material
adverse effect to the Company. The Company has budgeted resources for the year
2000 to address any Y2K compliant issues, which are not apparent at this time
but may arise later.
The Company's manufacturing processes do not utilize systems that are
materially reliant on Y2K compliance. Therefore, the Company's ability to
generate product will not be adversely affected by any Y2K issues.
The Company sells its product to numerous independent dealers, none of
which account for a material portion of the Company's sales. The Company
believes the risk of Y2K noncompliance associated with its dealer group is not
significant.
The Company's operations rely on a variety of suppliers, wholesale and
retail finance sources, transportation companies and utilities. The Company is
not aware of any material compliance problems with these vendors, however, it
will continue to monitor the sufficiency of this group's Y2K compliance efforts.
Liberty Homes believes the sole failure of any vendor would not have a material
adverse effect on the Company's business.
The total cost to date and expected future cost for Y2K remediation is
not material. Internally generated funds are the source of funding these
compliance costs.
The Company believes that its Y2K compliance efforts will significantly
reduce the risk of any material adverse business interruptions caused by
noncompliance. However, this statement should not be considered a guarantee of
such a reduction in risk.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT 27. FINANCIAL DATA SCHEDULE
No reports on Form 8-K for July, August or September, 1999 have been
filed.
12
<PAGE>
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.
LIBERTY HOMES, INC.
-------------------
Registrant
By /s/ MARC A. DOSMANN
----------------------------------------
Marc A. Dosmann
Vice President - Chief Financial Officer
(Principal Financial and
Accounting Officer)
Dated November 15, 1999
-----------------
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK>0000059240
<NAME> LIBERTY HOMES, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 16,280,000
<SECURITIES> 0
<RECEIVABLES> 20,465,000
<ALLOWANCES> 0
<INVENTORY> 16,045,000
<CURRENT-ASSETS> 57,212,000
<PP&E> 50,720,000
<DEPRECIATION> 22,872,000
<TOTAL-ASSETS> 85,060,000
<CURRENT-LIABILITIES> 25,147,000
<BONDS> 0
0
0
<COMMON> 3,904,000
<OTHER-SE> 52,317,000
<TOTAL-LIABILITY-AND-EQUITY> 85,060,000
<SALES> 140,742,000
<TOTAL-REVENUES> 140,742,000
<CGS> 122,206,000
<TOTAL-COSTS> 14,517,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,452,000
<INCOME-TAX> 1,864,000
<INCOME-CONTINUING> 2,588,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,588,000
<EPS-BASIC> .66
<EPS-DILUTED> .66
</TABLE>
