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 March 29, 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.
10,035,609 shares of Common Stock, $.0001 par value,
as of May 8, 1996
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
INDEX
Page
PART I FINANCIAL INFORMATION:
Consolidated Condensed Balance Sheets,
March 29, 1996 and December 29, 1995 2
Consolidated Condensed Statements of
Operations - Thirteen Weeks Ended
March 29, 1996 and March 31, 1995 3
Consolidated Condensed Statements of
Cash Flows - Thirteen Weeks Ended
March 29, 1996 and March 31, 1995 4
Notes to Consolidated Condensed Financial
Statements 5
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
PART II OTHER INFORMATION 10
SIGNATURES 11
EXHIBIT 27 12
I. FINANCIAL INFORMATION
Item 1. Financial Statements
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
March 29, December 29,
1996 1995
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $11,965,000 $16,750,000
Investments 50,000 2,076,000
Accounts receivable (less allowance for
doubtful accounts of $154,000 and
$163,000,respectively) 28,325,000 21,070,000
Installment contracts receivable - current 220,000 18,000
Inventories 14,895,000 11,226,000
Deferred tax benefits 1,269,000 1,269,000
Prepayments and other 1,610,000 623,000
58,064,000 53,032,000
PROPERTY AND EQUIPMENT:
Property and equipment, at cost 18,119,000 17,521,000
Less - Accumulated depreciation (4,026,000) (3,690,000)
14,093,000 13,831,000
INSTALLMENT CONTRACTS RECEIVABLE, less allowance
for credit losses of $194,000 and $0,
respectively 6,102,000 638,000
INTANGIBLES AND OTHER ASSETS:
Goodwill 7,792,000 7,509,000
Non-compete agreements 557,000 328,000
Organization and pre-operating costs 541,000 523,000
Other assets 38,000 38,000
15,030,000 9,036,000
$87,187,000 $75,899,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 77,000 $ 86,000
Accounts payable 8,607,000 4,947,000
Accrued liabilities 17,964,000 13,618,000
26,648,000 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, 10,035,609 shares
outstanding 1,000 1,000
Capital in excess of par 31,111,000 31,111,000
Retained earnings 29,427,000 26,130,000
60,539,000 57,242,000
$87,187,000 $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
March 29, March 31,
1996 1995
NET SALES $71,111,000 $55,569,000
COST OF SALES 61,763,000 48,904,000
Gross Profit 9,348,000 6,665,000
OPERATING EXPENSES:
Selling 1,659,000 1,395,000
General and administrative 2,219,000 1,770,000
Provision for credit losses 194,000 -
Amortization of intangibles 125,000 105,000
4,197,000 3,270,000
Operating income 5,151,000 3,395,000
INTEREST EXPENSE AND ACCRETION
OF DEBT DISCOUNT 1,000 49,000
INTEREST INCOME 214,000 147,000
Income before income taxes 5,364,000 3,493,000
PROVISION FOR INCOME TAXES 2,067,000 1,260,000
Net Income $ 3,297,000 $ 2,233,000
NET INCOME PER SHARE $ 0.33 $ 0.24
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON
EQUIVALENT SHARES 10,035,609 9,440,891
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)
Thirteen Weeks Ended
March 29, March 31,
1996 1995
OPERATING ACTIVITIES:
Net income $ 3,297,000 $ 2,233,000
Adjustments to reconcile net income
to cash used in operating activities:
Depreciation of property and equipment 336,000 205,000
Amortization of intangibles 125,000 105,000
Provision for doubtful accounts 185,000 15,000
Accretion of discount on debt - 15,000
Provision for credit losses 194,000 -
Originations of installment contracts (5,899,000) -
Principal collected on originated
installment contracts 39,000 -
Change in assets and liabilities:
Increase in inventory (3,669,000) (1,162,000)
Increase in accounts receivable (7,246,000) (5,779,000)
Increase in prepayments and other (1,289,000) (983,000)
Increase in accounts payable 3,490,000 1,770,000
Increase in accrued liabilities 4,329,000 1,841,000
Net cash used in operating activities (6,108,000) (1,810,000)
INVESTING ACTIVITIES:
Purchase of subsidiary, net of cash acquired (413,000) -
Capital expenditures (545,000) (1,587,000)
Maturities of investments 2,076,000 2,938,000
Purchase of investments (50,000) -
Net cash provided by investing activities 1,068,000 1,351,000
FINANCING ACTIVITIES:
Net repayments on long-term debt (15,000) (40,000)
Net cash used in financing activities (15,000) (40,000)
NET DECREASE IN CASH (5,055,000) (499,000)
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 $11,695,000 $ 3,505,000
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for interest $ 1,000 $ 25,000
Income taxes paid $ 433,000 $ 325,000
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 March 29, 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 and results of operations for the thirteen week periods
ended March 29, 1996 and March 31, 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:
March 29, December 29,
1996 1995
----------------- ---------------
(Unaudited)
Raw materials $12,905,000 $ 9,658,000
Work in progress 1,001,000 1,007,000
Finished goods 989,000 561,000
$14,895,000 $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.
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. At March 29, 1996, the Company's contingent
repurchase liability under floor plan financing arrangements was
approximately $61.5 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.
5. INSTALLMENT CONTRACTS RECEIVABLE:
Installment contract receivables are originated with various
borrowers located in the south-central region of the United
States and are collateralized by manufactured homes.
Interest income is recognized utilizing a method which
approximates the effective interest method. Reserves for credit
losses associated with installment contract receivables are
established based on the Company's anticipated loss experience,
current delinquencies and current economic conditions.
Management believes the reserve for credit losses is adequate to
cover losses inherent in the installment contract portfolio.
However, as conditions change which warrant adjustment to the
reserve such adjustment is made through periodic provisions.
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's answer is not due until May 31, 1996.
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
Thirteen weeks ended March 29, 1996 as compared with thirteen
weeks ended March 31, 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 thirteen weeks ended March 29, 1996 were $71.1 million, which
represented an increase of 28.0% over the same period of 1995.
Total homes sold in the thirteen weeks ended March 29, 1996 were
2,620, up 23.1% over the number of homes sold in the prior year
period. This increase is attributable primarily to increased
capacity from a manufactured housing facility in Alabama, which
started production in the fourth quarter of 1995, and increased
production from the Texas plant.
Gross Profit
Gross profit consists of net sales less the cost of sales, which
includes labor, materials and overhead. Gross profit for the
thirteen weeks ended March 29, 1996 increased to $9.4 million, or
13.2% of net sales, from $6.7 million, or 12.0% of net sales in
the prior year period. The increase in gross profit percentage
was attributable primarily to lower raw material prices, which
was partially offset by higher workers' compensation expenses and
increases in production wages and benefits.
Selling Expenses
Selling expenses include primarily sales commissions, advertising
expenses, salaries for support personnel and freight costs.
Selling expenses were $1.7 million, or 2.3% of net sales, during
the thirteen weeks ended March 29, 1996, as compared with $1.4
million, or 2.5% 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 thirteen weeks ended March 29, 1996
general and administrative expenses were $2.2 million, or 3.1% of
net sales, as compared with $1.8 million or 3.2% of the net
sales, in the prior year period. The decrease in general and
administrative expenses as a percentage of net sales was a result
of efficiencies achieved with the Company's increased growth in sales.
Provision for Credit Losses
Provision for credit losses for the thirteen weeks ended March
29, 1996 was $194,000 as compared with $0 in the prior year
period. The increase in the current year period was a result of
reserves established associated with the start-up of the
Company's finance subsidiary.
Interest Expense
Interest expense and accretion of debt discount for the thirteen
weeks ended March 29, 1996 was $1,000 as compared with $49,000 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 thirteen weeks ended March 29, 1996 was
$214,000 as compared with $147,000 in the prior year period. The
increase in interest income in the current year periods reflects
higher investment yields and higher 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 thirteen weeks ended
March 29, 1996 was $2.1 million, or an effective tax rate of
38.5% as compared with $1.3 million, or an effective tax rate of
36.1% in the prior year period. The increase in 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 March 29, 1996, the Company's net working capital was $31.4
million, including $11.7 million in cash and cash equivalents.
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 2%.
The Company's ability to draw upon this line of credit is
dependent upon meeting certain financial ratios and covenants.
At March 29, 1996, the Company has no outstanding borrowings
under this line.
During the thirteen weeks ended March 29, 1996, the Company's
cash used in operating activities was approximately $6.1 million.
Cash used in operating activities reflects originations of
installment contracts of $5.9 million, increased inventory,
accounts receivable and prepayments of approximately $12.2
million. These amounts were partially offset by net income of
$3.3 million, an increase in accounts payable and accrued
liabilities of approximately $7.8 million. Each of these
increases was primarily related to sales growth. Other
significant cash flows included 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 March 29, 1996, the
Company's contingent repurchase liability under floor plan
financing arrangements was approximately $61.5 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 $1.0 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 cash flow generated from its 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's answer is not due until May 31, 1996.
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
Not applicable.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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: May 13, 1996 By: \s\ WENDELL L. BATCHELOR
Wendell L. Batchelor,
President and Chief
Executive Officer
Date: May 13, 1996 By: \s\ KEITH W. BROWN
Keith W. Brown, Chief
Financial Officer,
Treasurer and Secretary
<TABLE> <S> <C>
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<LEGEND>
This schedule contains summary financial information extracted from the
financial statements in the Company's Quarterly Report on Form 10-Q for the
period ended March 29, 1996 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
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