UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 June 28, 1996 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)
(205) 747-8589
(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 issuer's
classes of common stock, as of the latest practicable date.
15,101,706 shares of Common Stock, $.0001 par value, as of July
23, 1996
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
INDEX
Page
PART I FINANCIAL INFORMATION:
Consolidated Condensed Balance Sheets,
June 28, 1996 and December 29, 1995 2
Consolidated Condensed Statements of Operations -
Thirteen Weeks Ended June 28, 1996 and June 30, 1995,
and Twenty-Six Weeks Ended June 28, 1996 and June 30, 1995 3
Consolidated Condensed Statements of Cash Flows -
Twenty-Six Weeks Ended June 28, 1996 and June 30, 1995 4
Notes to Consolidated Condensed Financial Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II OTHER INFORMATION 9
SIGNATURES 11
I. FINANCIAL INFORMATION
Item 1. Financial Statements
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
June 28, December 29,
1996 1995
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,881,000 $16,750,000
Investments 350,000 2,076,000
Accounts receivable (less allowance
for doubtful accounts of
$163,000 in 1996 and 1995) 26,775,000 21,070,000
Installment contracts receivable -
current 573,000 18,000
Inventories 14,460,000 11,226,000
Deferred tax benefits 2,188,000 1,269,000
Prepayments and other 2,020,000 623,000
56,247,000 53,032,000
PROPERTY AND EQUIPMENT:
Property and equipment, at cost 19,586,000 17,521,000
Less - Accumulated depreciation (4,435,000) (3,690,000)
15,151,000 13,831,000
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses of $898,000
and $0, respectively 21,231,000 638,000
INTANGIBLES AND OTHER ASSETS:
Goodwill 7,721,000 7,509,000
Non-compete agreements 535,000 328,000
Organization and pre-operating costs 531,000 523,000
Other assets 39,000 38,000
8,826,000 8,398,000
$101,455,000 $75,899,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 50,000 $ 86,000
Note payable 3,500,000 -
Accounts payable 12,077,000 4,947,000
Accrued liabilities 20,536,000 13,618,000
36,163,000 18,651,000
LONG-TERM DEBT - 6,000
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value,
1,000,000 shares authorized,
none outstanding
Common stock, $.0001 par value,
20,000,000 shares authorized,
15,101,706 shares outstanding at 2,000 2,000
June 28, 1996 and 15,053,388 at
December 29, 1995
Capital in excess of par 31,445,000 31,110,000
Retained earnings 33,845,000 26,130,000
65,292,000 57,242,000
$101,455,000 $75,899,000
The accompanying notes are an integral part of these consolidated
condensed financial statements.
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
Ended
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
NET SALES $83,921,000 $61,215,000 $155,032,000 $116,784,000
COST OF SALES
71,318,000 52,713,000 133,081,000 101,617,000
Gross profit 12,603,000 8,502,000 21,951,000 15,167,000
OPERATING EXPENSES:
Selling 1,461,000 3,179,000 2,856,000 1,520,000 00
General and
administrative 3,197,000 1,867,000 5,416,000 3,637,000
Provision for credit
losses 704,000 - 898,000 -
Amortization of
intangibles 124,000 103,000 249,000 208,000
5,545,000 3,431,000 9,742,000 6,701,000
Operating income 7,058,000 5,071,000 12,209,000 8,466,000
INTEREST EXPENSE 2,000 89,000 3,000 138,000
INTEREST INCOME 123,000 201,000 337,000 348,000
Income before income taxes 7,179,000 5,183,000 12,543,000 8,676,000
PROVISION FOR INCOME
TAXES 2,761,000 1,934,000 4,828,000 3,194,000
Net income $4,418,000 $3,249,000 $7,715,000 $5,482,000
NET INCOME PER SHARE $0.29 $0.23 $0.51 $0.39
WEIGHTED AVERAGE NUMBER
OF COMMOM AND COMMON
EQUIVALENT SHARES 15,071,239 14,161,336 15,062,406 14,161,336
The accompanying notes are an integral part of these
consolidated condensed financial statements.
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Twenty-Six Weeks Ended
June 28, June 30,
1996 1995
OPERATING ACTIVITIES:
Net income $7,715,000 $5,482,000
Adjustments to reconcile net income to
cash (used in) provided by operating
activities
Depreciation of property and
equipment 745,000 497,000
Amortization of intangibles 249,000 208,000
Credit for deferred tax benefits (919,000) (158,000)
Provision for doubtful accounts - 17,000
Accretion of discount on debt - 29,000
Provision for credit losses 898,000 -
Originations of installment contracts (22,140,000) -
Principal collected on originated
installment contracts 94,000 -
Change in assets and liabilities:
Increase in inventory (3,234,000) (21,000)
Increase in accounts receivable (5,705,000) (4,954,000)
Increase in prepayments and other (934,000) (1,259,000)
Increase in accounts payable 6,960,000 1,065,000
Increase in accrued liabilities 6,308,000 2,152,000
Net cash (used in) provided by
operating activities (9,963,000) 3,058,000
INVESTING ACTIVITIES:
Purchase of subsidiary, net of cash
acquired (413,000) -
Capital expenditures (2,012,000) (2,276,000)
Maturities of investments 2,076,000 2,869,000
Purchase of investments (350,000) -
Net cash (used in) provided by
investing activities (699,000) 593,000
FINANCING ACTIVITIES:
Net borrowings on note payable 3,500,000 -
Repayments on long-term debt (42,000) (1,347,000)
Proceeds from exercise of stock options 335,000 -
Net cash (used in) provided by
financing activities 3,799,000 (1,347,000)
NET INCREASE (DECREASE) IN CASH (6,869,000) 2,304,000
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF THE PERIOD 16,750,000 4,004,000
CASH AND CASH EQUIVALENTS AT THE END OF THE
PERIOD $9,881,000 $6,308,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for
interest $ 3,000 $ 69,000
Income taxes paid $3,848,000 $3,395,000
The accompanying notes are an integral part of these consolidated
condensed financial statements.
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The consolidated condensed balance sheet as of December 29, 1995,
which has been derived from audited financial statements, and the
unaudited interim consolidated condensed financial statements as
of June 28, 1996, have been prepared by the Company without
audit, but in the opinion of management reflect all adjustments
necessary for the fair presentation of the Company's financial
position as of December 29, 1995 and June 28, 1996 and the
results of operations for the thirteen and twenty-six week
periods ended June 28, 1996 and June 30, 1995. Results of
operations for the interim 1996 period are not necessarily
indicative of results expected for the full year. While certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and
Exchange Commission, the Company believes that the disclosures
herein are adequate to make the information presented not
misleading. These financial statements should be read in
conjunction with the audited financial statements and the notes
thereto included in the Company's 1995 Annual Report to
Shareholders for the year ended December 29, 1995.
2. INVENTORIES:
Inventories are valued at first-in, first-out ("FIFO") cost,
which is not in excess of market. An analysis of inventories
follows:
June 28, December 29,
1996 1995
(Unaudited)
Raw materials $12,409,000 $ 9,658,000
Work in progress 1,129,000 1,007,000
Finished goods 922,000 561,000
$14,460,000 $11,226,000
3. NET INCOME PER SHARE:
Net income per common and common equivalent share is computed by
dividing net income by the weighted average number of shares of
common stock and common stock equivalents outstanding during the
periods. An analysis of weighted average shares outstanding
follows:
Thirteen Weeks Ended Twenty-Six Weeks Ended
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
Weighted average shares,
excluding stock option
effects 15,053,388 14,161,336 15,053,388 14,161,336
Weighted average effect
of stock options 17,851 0 9,018 0
Weighted average shares 15,071,239 14,161,336 15,062,406 14,161,336
4. REPURCHASE AGREEMENTS:
It is customary practice for companies in the manufactured home
industry to enter into repurchase agreements with financial
institutions which provide financing to dealers. Generally, the
agreements provide for the repurchase of the manufactured homes
from the financing institution in the event of repossession upon
a dealer's default. The Company's contingent liability under
such agreements is approximately $63.5 million as of June 28,
1996. Losses experienced under these agreements have not been
significant and, in the opinion of management, any future losses
under these agreements should not have a material effect on the
accompanying financial statements.
5. STOCK SPLIT:
On June 5, 1996, the Board of Directors of the Company voted to
approve a three-for-two stock split of the Company's common
stock, payable in the form of a 50% stock dividend on July 3,
1996 to shareholders 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 will remain
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.
6. LEGAL PROCEEDINGS:
The Company is the defendant in a lawsuit filed on March 27, 1996
in Fulton County Superior Court, Georgia by EurAm International,
Inc., a sales agent for the Company. On April 29, 1996 the
Company removed the case to the United States District Court for
the Northern District of Georgia in Atlanta. In this lawsuit,
the plaintiff alleges that the Company has caused a breach to a
written agreement relating to the sale of the Company's modular
homes in Germany, including alleged misrepresentations and faulty
performance, resulting in damages alleged to amount to $25
million. The Company believes the claim is without merit and
intends to vigorously defend the claim.
In addition, the Company has been informed by Gesellschoft fur
Bauen Und Wohnen Hannover MbH ("GBH"), a German housing
authority, that it is proceeding to replace the Company with a
local company to complete a contract that GBH had entered into
with the Company for the purchase and erection of modular housing
in Hannover, Germany. GBH has notified the Company that GBH
intends to make a claim against the Company for any resulting
damages due to the prospective shift in suppliers. The Company
is actively negotiating with GBH to resolve the dispute. In the
opinion of management, and in consultation with corporate
counsel, any losses associated with these claims should not have
a material effect on the Company's financial statements.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Twenty-six and thirteen weeks ended June 28, 1996 as compared
with twenty-six and thirteen weeks ended June 30, 1995.
Net Sales
The Company manufactures its homes pursuant to dealer orders, and
sales are recognized upon completion of the home. Net sales
(gross sales less volume discounts, returns and allowances) for
the twenty-six weeks ended June 28, 1996 were $155.0 million,
which represented an increase of 32.8% over the same period of
1995. For the thirteen weeks ended June 28, 1996, net sales
increased 37.1% to $83.9 million from $61.2 million in the
comparable period a year ago. Total homes sold in the twenty-six
and thirteen weeks ended June 28, 1996 were 5,650 and 3,030, up
26.9% and 30.3%, respectively, over the homes sold in the prior
year periods. These increases are attributable primarily to
increased capacity from a manufactured housing facility in
Alabama, which started production in the fourth quarter of 1995.
Gross Profit
Gross profit consists of net sales less the cost of sales, which
includes labor, materials and overhead. Gross profit for the
twenty-six weeks ended June 28, 1996 was $22.0 million, or 14.2%
of net sales as compared with $15.2 million, or 13.0% of net
sales, in the prior year period. For the thirteen weeks ended
June 28, 1996, gross profit increased to $12.6 million, or 15.0%
of net sales, from $8.5 million, or 13.9% of net sales in the
prior year period. The increase in gross profit percentage in
the most recent quarter was attributable to lower raw material
prices and increased labor efficiency, which was partially offset
by increased warranty costs.
Selling Expenses
Selling expenses include primarily sales commissions, advertising
expenses, salaries for support personnel and freight costs.
Selling expenses were $3.2 million, or 2.1% of net sales, during
the twenty-six weeks ended June 28, 1996, as compared with $2.9
million, or 2.5% of net sales, during the prior year period. For
the quarter ended June 28, 1996, selling expenses were $1.5
million, or 1.8% of net sales, as compared with $1.5 million or
2.4% of net sales, for the same period of the prior year. The
decrease in selling expense as a percentage of net sales was
attributable primarily to savings in shipping costs arising from
shipments through MH Transport, Inc., the Company's newly formed
trucking subsidiary.
General and Administrative
General and administrative expenses include administrative
salaries, executive and management bonuses, insurance costs and
professional fees. For the twenty-six weeks ended June 28, 1996,
general and administrative expenses were $5.4 million, or 3.5% of
net sales, as compared with $3.6 million, or 3.1% of net sales,
for the same period of 1995. For the quarter ended June 28, 1996
general and administrative expenses were $3.2 million, or 3.8% of
net sales, as compared with $1.9 million or 3.1% of the net
sales, in the prior year period. The increase in general and
administrative expense is primarily attributable to increased
reserves for legal and other expenses associated with the
Company's sales initiatives in Germany and to additional
employees hired in connection with the Company's expansion.
Provision for Credit Losses
Provision for credit losses for the twenty-six weeks ended June
28, 1996 was $898,000, as compared with $0 in the prior year
period. For the thirteen weeks ended June 28, 1996 provision for
credit losses was $704,000, as compared with $0 in the prior year
period. The increase in the current year periods was a result of
reserves established associated with the start-up of the
Company's finance subsidiary.
Interest Expense
Interest expense for the twenty-six weeks ended June 28, 1996 was
$3,000, as compared with $138,000 in the prior year period. For
the thirteen weeks ended June 28, 1996, interest expense was
$2,000, as compared with $89,000 in the prior year period. The
decrease in the current year period was a result of the June 1995
full repayment of certain related party debt.
Interest Income
Interest income for the twenty-six weeks ended June 28, 1996 was
$337,000, as compared with $348,000 in the prior year period.
For the thirteen weeks ended June 28, 1996, interest income was
$123,000, as compared with $201,000. The decrease in interest
income in the current year periods reflects lower average cash
and investment balances.
Provision for Income Taxes
Income taxes are provided based on the tax effect of revenue and
expense transactions included in the determination of pre-tax
book income. Income tax expense for the twenty-six weeks ended
June 28, 1996 was $4.8 million, or an effective tax rate of 38.5%
as compared with $3.2 million, or an effective tax rate of 36.8%
in the prior year period. The increase in the effective tax rate
is attributable in part to the Company's movement into a higher
federal income tax bracket and also reflects a proportional shift
in the Company's income from Alabama to other states which have
higher tax rates than Alabama.
LIQUIDITY AND CAPITAL RESOURCES
Since its organization, the Company has financed its operations
primarily from a combination of cash generated from operations,
stock offerings and borrowings.
At June 28, 1996, the Company's net working capital was $20.1
million, including $9.9 million in cash and cash equivalents and
$350,000 in investments. The Company also has a $10.0 million
unsecured line of credit from AmSouth Bank, N.A., which is
renewable annually and bears interest at the London Interbank
Offered Rate ("LIBOR") plus 1.5% (7.0% at June 28, 1996). The
Company's ability to draw upon this line of credit is dependent
upon meeting certain financial ratios and covenants. At June 28,
1996, the Company had $3,500,000 in outstanding borrowings under
this line.
The Company's finance subsidiary, Wenco Finance, Inc., also has a
$10.0 million unsecured line of credit with a bank, which is
guaranteed by the Company and is renewable annually and bears
interest at LIBOR plus 1.5% (7.0% at June 28, 1996). The
Company's ability to draw upon this line of credit is dependent
upon meeting certain financial ratios and covenants. At June 28,
1996, the Company had no borrowings under this line.
During the twenty-six weeks ended June 28, 1996, the Company's
cash used in operating activities was approximately $10.0
million. Cash used in operating activities reflects originations
of installment contracts of $22.1 million, increased inventory,
accounts receivable and prepayments of approximately $10.4
million. These amounts were partially offset by net income of
$7.7 million and an increase in accounts payable and accrued
liabilities of approximately $13.3 million. Each of these
increases was primarily related to sales growth. Other
significant cash flows included capital expenditures of $2.0
million and short term borrowings of $3.5 million and maturities
of investments of $2.1 million.
In January 1996, the Company purchased a wood trim and moulding
finishing Company in Haleyville, Alabama for $413,000. The
Company does not anticipate any significant expenditures for
capital improvements for this facility.
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
arrangement, 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 June 28, 1996, the
Company's contingent repurchase liability under floor plan
financing arrangements was approximately $63.5 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, these arrangements.
During 1996, the Company plans to build a new corporate office
facility adjacent to its Southern Energy plant in Addison,
Alabama at a cost of approximately $1.6 million, and plans to
provide additional capitalization for Wenco, its finance
subsidiary. The amount of capital which the Company may commit
to Wenco has not been established at this time and is dependent
upon how quickly Wenco can move beyond its current start-up phase
of operation.
The Company believes that its cash flow generated from operations
and available sources of credit will provide adequate cash to
fund the Company's future working capital requirements and growth
plans through at least December 1996.
"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 finance subsidiary to
originate and service consumer loans; the performance of those
loans; 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; and other risks indicated from time to time
in the Company's filings with the Securities and Exchange
Commission.
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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is the defendant in a lawsuit filed on March 27, 1996
in Fulton County Superior Court, Georgia by EurAm International,
Inc., a sales agent for the Company. On April 29, 1996 the
Company removed the case to the United States District Court for
the Northern District of Georgia in Atlanta. In this lawsuit,
the plaintiff alleges that the Company has caused a breach to a
written agreement relating to the sale of the Company's modular
homes in Germany, including alleged misrepresentations and faulty
performance, resulting in damages alleged to amount to $25
million. The Company believes the claim is without merit and
intends to vigorously defend the claim.
In addition, the Company has been informed by Gesellschoft fur
Bauen Und Wohnen Hannover MbH ("GBH"), a German housing
authority, that it is proceeding to replace the Company with a
local company to complete a contract that GBH had entered into
with the Company for the purchase and erection of modular housing
in Hannover, Germany. GBH has notified the Company that GBH
intends to make a claim against the Company for any resulting
damages due to the prospective shift in suppliers. The Company
is actively negotiating with GBH to resolve the dispute. In the
opinion of management, and in consultation with corporate
counsel, any losses associated with these claims should not have
a material effect on the Company's financial statements.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on May
22, 1996. At the meeting, the stockholders approved the re-
election of the Board of Directors of the Company and the
Company's 1996 Option Plan for Non-Employee Directors. The votes
were as follows:
Election of Directors:
For Withheld
Wendell L. Batchelor 6,852,192 30,249
Keith W. Brown 6,852,192 30,249
Jonathan O. Lee 6,852,192 30,249
Johnny R. Long 6,852,192 30,249
Paul J. Evanson 6,852,192 30,249
Joseph J. Incandela 6,852,192 30,249
1996 Option Plan for Non-Employee Directors:
For Against Abstain
6,817,642 38,574 26,225
Item 5. Other Information
On June 5, 1996, the Board of Directors of the Company voted
to approve a three-for-two stock split of the Company's common
stock, payable in the form of a 50% stock dividend on July 3,
1996 to shareholders 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 will remain
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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Schedule 27 - Financial Data Schedule
(b) Reports on Form 8-K None
SIGNATURES
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.
SOUTHERN ENERGY HOMES, INC.
Date: July 30, 1996 By:/S/__________________
Wendell L. Batchelor,President
and Chief Executive Officer
Date: July 30, 1996 By:/S/__________________
Keith W. Brown, Chief Financial Officer,
Treasurer and Secretary
