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SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-Q
(Mark One)
| /x/ |
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2000.
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 (State of Incorporation) |
35-1174256 (IRS Employer Identification No.) |
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| PO Box 35, Goshen, Indiana (Address of principal executive offices) |
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46527 (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.
| Class |
Shares of Outstanding at November 5, 2000 |
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|---|---|---|
| Class A Common Stock, $1.00 par value | 2,083,170 | |
| Class B Common Stock, $1.00 par value | 1,669,697 |
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Pages |
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| Part I—Consolidated Financial Information (Unaudited) | ||||
| General |
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| Item 1. |
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Consolidated Financial Statements—Liberty Homes, Inc. |
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3 |
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Consolidated Balance Sheet, as of September 30, 2000 and December 31, 1999 |
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4 |
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Consolidated Statement of Income, for the three months ended September 30, 2000 and 1999 |
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5 |
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Consolidated Statement of Income, for the nine months ended September 30, 2000 and 1999 |
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6 |
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Consolidated Statement of Cash Flows for the nine months ended September 30, 2000 and 1999 |
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7 |
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Notes to Consolidated Financial Statements |
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8 |
| Item 2. |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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9 |
| Part II—Other Information |
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| Item 6. |
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Exhibits and Reports on Form 8-K |
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10 |
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Signature |
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11 |
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2
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 1999. 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.
3
LIBERTY HOMES, INC.
CONSOLIDATED BALANCE SHEET
as of September 30, 2000 and December 31, 1999
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September 30, 2000 |
December 31, 1999 |
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|---|---|---|---|---|---|---|---|---|
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 6,622,000 | $ | 10,555,000 | ||||
| Short term investments | 350,000 | 6,535,000 | ||||||
| Receivables | 15,445,000 | 10,248,000 | ||||||
| Inventories | 20,571,000 | 15,327,000 | ||||||
| Deferred tax asset | 2,240,000 | 2,240,000 | ||||||
| Income taxes refundable | 1,913,000 | 715,000 | ||||||
| Prepayments and other | 1,917,000 | 1,988,000 | ||||||
| Total current assets | 49,058,000 | 47,608,000 | ||||||
| Property, plant and equipment: | ||||||||
| Land | 1,928,000 | 1,926,000 | ||||||
| Buildings and improvements | 29,604,000 | 28,241,000 | ||||||
| Machinery and equipment | 21,599,000 | 20,742,000 | ||||||
| 53,131,000 | 50,909,000 | |||||||
| Less accumulated depreciation | 25,505,000 | 23,429,000 | ||||||
| 27,626,000 | 27,480,000 | |||||||
| Total assets | $ | 76,684,000 | $ | 75,088,000 | ||||
| LIABILITIES |
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| Current liabilities: | ||||||||
| Accounts payable | $ | 4,581,000 | $ | 2,216,000 | ||||
| Dividend payable | 266,000 | 273,000 | ||||||
| Accrued compensation & payroll taxes | 1,900,000 | 2,479,000 | ||||||
| Other accrued liabilities | 9,191,000 | 10,837,000 | ||||||
| Floorplan financing payable | 5,825,000 | — | ||||||
| Total current liabilities | 21,763,000 | 15,805,000 | ||||||
| Deferred income taxes | 2,420,000 | 2,420,000 | ||||||
| Minority interest in subsidiaries | 1,255,000 | 1,341,000 | ||||||
| Contingent liabilities (see notes) | ||||||||
| SHAREHOLDER'S EQUITY |
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| Capital Stock: | ||||||||
| Class A, $1 par value | ||||||||
| Authorized—7,500,000 Shares Issued & outstanding—2,126,000 in 2000 & 2,198,000 in 1999 | 2,126,000 | 2,198,000 | ||||||
| Class B, $1 par value | ||||||||
| Authorized—3,500,000 Shares Issued & outstanding—1,674,000 in 2000 & 1,706,000 in 1999 | 1,674,000 | 1,706,000 | ||||||
| Other capital | 83,000 | 83,000 | ||||||
| Retained earnings | 47,363,000 | 51,535,000 | ||||||
| 51,246,000 | 55,522,000 | |||||||
| Total liabilities and stockholder's equity | $ | 76,684,000 | $ | 75,088,000 | ||||
4
LIBERTY HOMES, INC.
CONSOLIDATED STATEMENT OF INCOME
for the three months ended September 30, 2000 and 1999
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2000 |
1999 |
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|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | 28,710,000 | $ | 47,259,000 | |||||
| Cost of sales | 26,910,000 | 41,584,000 | |||||||
| Gross profit | 1,800,000 | 5,675,000 | |||||||
| Selling, general and administrative expenses | 4,461,000 | 4,758,000 | |||||||
| Operating income (loss) | (2,661,000 | ) | 917,000 | ||||||
| Interest expense | (139,000 | ) | — | ||||||
| Interest and other income | 108,000 | 269,000 | |||||||
| Income (loss) before minority interest and income taxes | (2,692,000 | ) | 1,186,000 | ||||||
| Minority interest | 103,000 | (102,000 | ) | ||||||
| Income tax benefit (expense) | 1,077,000 | (456,000 | ) | ||||||
| Net income (loss) | $ | (1,512,000 | ) | $ | 628,000 | ||||
| Share income (loss) per outstanding Common Share—basic and fully diluted | $ | (.40 | ) | $ | .16 | ||||
| Weighted average shares outstanding | 3,811,000 | 3,909,000 | |||||||
| Cash dividend per share: | |||||||||
| Class A Common Stock | $ | .07 | $ | .07 | |||||
| Class B Common Stock | $ | .07 | $ | .07 | |||||
5
LIBERTY HOMES, INC.
CONSOLIDATED STATEMENT OF INCOME
for the nine months ended September 30, 2000 and 1999
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2000 |
1999 |
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|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | 99,877,000 | $ | 140,742,000 | |||||
| Cost of sales | 91,742,000 | 122,206,000 | |||||||
| Gross profit | 8,135,000 | 18,536,000 | |||||||
| Selling, general and administrative expenses | 13,172,000 | 14,517,000 | |||||||
| Operating income (loss) | (5,037,000 | ) | 4,019,000 | ||||||
| Interest expense | (228,000 | ) | — | ||||||
| Interest and other income | 482,000 | 826,000 | |||||||
| Income (loss) before minority interest and income taxes | (4,783,000 | ) | 4,845,000 | ||||||
| Minority interest | 86,000 | (393,000 | ) | ||||||
| Income tax benefit (expense) | 1,913,000 | (1,864,000 | ) | ||||||
| Net income (loss) | $ | (2,784,000 | ) | $ | 2,588,000 | ||||
| Share income (loss) per outstanding Common Share—basic and fully diluted | $ | (.72 | ) | $ | .66 | ||||
| Weighted average shares outstanding | 3,871,000 | 3,920,000 | |||||||
| Cash dividend per share: | |||||||||
| Class A Common Stock | $ | .21 | $ | .21 | |||||
| Class B Common Stock | $ | .21 | $ | .21 | |||||
6
LIBERTY HOMES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
for the nine months ended September 30, 2000 and 1999
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2000 |
1999 |
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|---|---|---|---|---|---|---|---|---|---|
| Cash flows from operating activities: | |||||||||
| Net income (loss) | $ | (2,784,000 | ) | $ | 2,588,000 | ||||
| Adjustment to reconcile net income to net cash used in operating activities— | |||||||||
| Depreciation | 2,076,000 | 2,017,000 | |||||||
| Minority interest in income | (86,000 | ) | 393,000 | ||||||
| Changes in assets and liabilities: | |||||||||
| Receivables | (5,197,000 | ) | (11,358,000 | ) | |||||
| Inventories | (5,244,000 | ) | (2,874,000 | ) | |||||
| Prepayments and other | 71,000 | (313,000 | ) | ||||||
| Accounts payable | 2,365,000 | 6,041,000 | |||||||
| Accrued liabilities | (2,232,000 | ) | 511,000 | ||||||
| Income taxes payable/receivable | (1,198,000 | ) | (458,000 | ) | |||||
| Net cash used in operating activities | (12,229,000 | ) | (3,453,000 | ) | |||||
| Cash flows provided by (used in) investing activities | |||||||||
| Additions to property, plant and equipment | (2,222,000 | ) | (2,774,000 | ) | |||||
| Redemption of (investment in) short-term investment | 6,185,000 | (1,235,000 | ) | ||||||
| Net cash provided by (used in) investing activities | 3,963,000 | (4,009,000 | ) | ||||||
| Cash flows provided by (used in) financing activities— | |||||||||
| Cash dividends paid | (807,000 | ) | (822,000 | ) | |||||
| Floorplan financing | 5,825,000 | — | |||||||
| Minority interest contributed capital | — | 60,000 | |||||||
| Retirement of common stock | (685,000 | ) | (472,000 | ) | |||||
| Net cash provided by (used in) financing activities | 4,333,000 | (1,234,000 | ) | ||||||
| Net decrease in cash and cash equivalents | (3,933,000 | ) | (8,696,000 | ) | |||||
| Cash and cash equivalents at beginning of period | 10,555,000 | 18,441,000 | |||||||
| Cash and cash equivalents at end of period | $ | 6,622,000 | $ | 9,745,000 | |||||
| Supplemental disclosures of cash flow information cash paid during the period for income taxes and interest expense | $ | 302,000 | $ | 2,324,000 | |||||
7
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 has established what it believes is an appropriate level of accruals to reflect current and anticipated repurchase activity. The Company believes any losses incurred under outstanding repurchase agreements in excess of the accruals established as of September 30, 2000 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.
REVENUE RECOGNITION:
The Company recognizes revenue when the product is shipped to independent dealers.
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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, 2000 and December 31, 1999 were $6,972,000 and $17,090,000, respectively. Working capital as of September 30, 2000 and December 31, 1999 was $27,295,000 and $31,803,000, respectively. Repurchases of homes due to dealer failure and the establishment of retail sales centers to dispose of these repurchased homes reduced liquidity during the current period. Also during the nine months ended September 30, 2000, the Company repurchased a total of 104,000 shares of common stock under the program initiated in 1994 and subsequently amended to acquire up to 1,100,000 shares of its common stock.
Results of Operations
Net sales for the third quarter of 2000 were $28,710,000, as compared to $47,259,000 for the same quarter of 1999. The sales activity of the Company followed the industry trend during the third quarter. This downturn in sales was caused, in part, by an overproduction of homes in prior periods by the industry relative to retail sales in prior periods. This overproduction has resulted in homes being offered by the Company's competitors at discounted prices resulting in a reduction of orders for new homes. Also, the industry has seen a tightening of credit on both the wholesale and retail financing of homes. This tightening has been caused by the decision of several major financing companies to cease doing business in the manufactured housing industry along with a reluctance by the secondary market to purchase retail contracts of the finance companies thus causing an increase in interest rates for our retail customers. In addition, remaining finance companies have tightened underwriting standards resulting in fewer qualifying retail customers and the tightening in the wholesale finance market has caused many of the Company's retailers to reduce inventory. Furthermore, increased retail and wholesale loan defaults have caused a corresponding increase in the number of repossessed homes offered for resale, which has displaced some demand for newly manufactured homes. A substantial number of homes were repurchased by the Company in satisfaction of repurchase obligations the Company has with its dealers' finance companies. The majority of these homes were re-sold by the end of the quarter, while the balance remained in inventory and accordingly reduced sales.
The reduction in sales and the increase in repurchase activity had an adverse effect on net income for the third quarter of 2000. The Company had an operating loss of $2,661,000 and a net loss of $1,512,000 for the third quarter of 2000 compared to operating income of $917,000 and net income of $628,000 for the same quarter in 1999. The Company provided $1,862,000 for the three months ended September 30, 2000 and $2,863,000 for the nine months ended September 30, 2000 for the losses on the repurchase and resale of its homes.
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 normally indicative of the day-to-day retail sales activity of its products. However, with the tightening in the wholesale financing market, many dealers have chosen to reduce their inventory levels which has had an impact on the Company's sales. 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.
Subsequent to the end of the third quarter, the Company decided to temporarily close its manufacturing plant in Tuscumbia, Alabama and shift the production of units built in that plant to the Company's Hamilton, Alabama plant. The close proximity of these two plants allows for the transfer of key employees to the Hamilton plant and easy access to the same customer base. The Company is maintaining the Tuscumbia plant in a state of readiness to re-start production when market demand warrants.
9
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27. Financial Data Schedule
A Form 8-K was filed on July 21, 2000 to report a modification to the Company's Stock Repurchase Program which increases to 1,100,000 the total share the Company may repurchase under the program which began in November, 1994.
10
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 |
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BY: |
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Marc A. Dosmann Vice President—Chief Financial Officer (Principal Financial and Accounting Officer) |
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Dated November 14, 2000
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