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 September 27, 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
October 31, 1996
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
INDEX
Page
PART I FINANCIAL INFORMATION:
Consolidated Condensed Balance Sheets,
September 27, 1996 and December 29, 1995
2
Consolidated Condensed Statements of Operations -
Thirteen
Weeks Ended September 27, 1996 and September 29,
1995, and
Thirty-nine Weeks Ended September 27, 1996 and
September 29, 1995 3
Consolidated Condensed Statements of Cash Flows -
Thirty-nine
Weeks Ended September 27, 1996 and September 29,
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
I. FINANCIAL INFORMATION
Item 1. Financial Statements
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
September December
27, 29,
1996 1995
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $4,195,000 $16,750,000
Investments 650,000 2,076,000
Accounts receivable (less allowance
for doubtful accounts of 26,024,000 21,070,000
$182,000 in 1996 and $163,000 in
1995)
Installment contracts receivable - 622,000 18,000
current
Inventories 15,322,000 11,226,000
Deferred tax benefits 2,188,000 1,269,000
Prepayments and other
1,520,000 623,000
53,032,000
50,521,000
PROPERTY AND EQUIPMENT:
Property and equipment, at cost 20,928,000 17,521,000
Less - Accumulated depreciation
(4,855,000) (3,690,000)
16,073,000 13,831,000
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance
for credit losses of $991,000 and 24,689,000 638,000
$0, respectively
INTANGIBLES AND OTHER ASSETS:
Goodwill 7,691,000 7,509,000
Non-compete agreements 648,000 328,000
Organization and pre-operating costs 508,000 523,000
Other assets
40,000 38,000
8,887,000 8,398,000
$100,170,000 $75,899,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ $
29,000 86,000
Accounts payable 10,841,000 4,947,000
Accrued liabilities
19,991,000 13,618,000
30,861,000 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
September 27, 1996 and
15,053,388 at December 29, 1995
Capital in excess of par 31,445,000 31,110,000
Retained earnings
37,862,000 26,130,000
69,309,000 57,242,000
$100,170,000 $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 Thirty-nine Weeks
Ended Ended
September September September September
27, 29, 27, 29,
1996 1995 1996 1995
NET SALES $77,414,000 $58,460,000 $232,446,000 $175,244,000
COST OF SALES 50,550,000
66,490,000 199,571,000 152,167,000
Gross
profit 10,924,000 7,910,000 32,875,000 23,077,000
OPERATING EXPENSES:
Selling 1,322,000 4,910,000 4,178,000
1,731,000
General and 1,837,000 7,942,000 5,474,000
administrative 2,526,000
Provision for - 1,066,000 -
credit losses 168,000
Amortization of
intangibles 130,000 104,000 379,000 312,000
4,555,000 3,263,000 14,297,000 9,964,000
Operating
income 6,369,000 4,647,000 18,578,000 13,113,000
INTEREST EXPENSE 7,000 3,000 10,000 141,000
INTEREST INCOME 164,000 175,000 501,000 523,000
Income
before income taxes 6,526,000 4,819,000 19,069,000 13,495,000
PROVISION FOR
INCOME TAXES 2,509,000 1,755,000 7,337,000 4,949,000
Net income $ 4,017,000 $ 3,064,000 $ 11,732,000 $ 8,546,000
NET INCOME PER $0.27 $0.22 $0.78 $0.60
SHARE
WEIGHTED AVERAGE
NUMBER OF
COMMON AND COMMON
EQUIVALENT SHARES 15,101,706 14,161,336 15,075,229 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)
Thirty-nine Weeks Ended
September September
27, 29,
1996 1995
OPERATING ACTIVITIES:
Net income $11,732,000 $8,546,000
Adjustments to reconcile net income to
cash (used in) provided
by operating activities
Depreciation of property and 1,165,000 902,000
equipment
Amortization of intangibles 379,000 312,000
Credit for deferred tax benefits (919,000) (302,000)
Provision for doubtful accounts 19 27,000
Accretion of discount on debt - 78,000
Provision for credit losses 1,066,000 -
Origination of installment contracts (25,731,000) -
Principal collected on originated 85,000 -
installment contracts
Change in assets and liabilities:
Increase in inventory (4,096,000) (1,043)
Increase in accounts receivable (4,973,000) (4,848,000)
Increase in prepayments and other (1,765,000) (1,181,000)
Increase in accounts payable 5,894,000 2,218,000
Increase in accrued liabilities
6,373,000 2,549,000
Net cash (used in) provided by
operating activities (10,846,000) 7,258,000
INVESTING ACTIVITIES:
Purchase of subsidiary, net of cash (413,000) -
acquired
Capital expenditures (2,994,000) (3,643,000)
Maturities of investments 2,076,000 2,757,000
Purchase of investments
(650,000) -
Net cash (used in) provided by
investing activities (1,981,000) (886,000)
FINANCING ACTIVITIES:
Repayments on long-term debt (1,432,000)
(63,000)
Proceeds from exercise of stock options
335,000 -
Net cash (used in) provided by 272,000 (1,432,000)
financing activities
NET INCREASE (DECREASE) IN CASH
(12,555,000) (4,940,000)
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 $ 4,195,000 $ 8,944,000
PERIOD
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for $ 10,000 $ 72,000
interest
Income taxes paid $ 6,778,000 $ 5,356,000
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 September 27, 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 September 27, 1996 and the
results of operations for the thirteen and Thirty-nine week
periods ended September 27, 1996 and September 29, 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:
September 27, December 29,
1996 1995
(Unaudited)
Raw materials $13,427,000 $ 9,658,000
Work in progress 1,120,000 1,007,000
Finished goods 775,000 561,000
$15,322,000 $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 Thirty-nine weeks ended
September 27, September 29, September 27, September 29,
1996 1995 1996 1995
Weighted average shares,
excluding stock option
effects 15,101,706 14,161,336 15,053,388 14,161,336
Weighted average effect
of stock options 0 0 21,841 0
Weighted average shares 15,101,706 14,161,336 15,075,229 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 $88.0 million as of September
27, 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
Thirty-nine and thirteen weeks ended September 27, 1996 as
compared with Thirty-nine and thirteen weeks ended September 29,
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 thirty-nine weeks ended September 27, 1996 were $232.4
million, which represented an increase of 32.6% over the same
period of 1995. For the thirteen weeks ended September 27, 1996,
net sales increased 32.4% to $77.4 million from $58.5 million in
the comparable period a year ago. Total homes sold in the thirty-
nine and thirteen weeks ended September 27, 1996 were 8,403 and
2,753, up 24.5% and 18.8%, 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
thirty-nine weeks ended September 27, 1996 was $32.9 million, or
14.1% of net sales as compared with $23.1 million, or 13.2% of
net sales, in the prior year period. For the thirteen weeks
ended September 27, 1996, gross profit increased to $10.9
million, or 14.1% of net sales, from $7.9 million, or 13.5% 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 $4.9 million, or 2.1% of net sales, during
the thirty-nine weeks ended September 27, 1996, as compared with
$4.2 million, or 2.4% of net sales, during the prior year period.
For the quarter ended September 27, 1996, selling expenses were
$1.7 million, or 2.2% of net sales, as compared with $1.3 million
or 2.3% 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 thirty-nine weeks ended September 27,
1996, general and administrative expenses were $7.9 million, or
3.4% of net sales, as compared with $4.2 million, or 3.1% of net
sales, for the same period of 1995. For the quarter ended
September 27, 1996 general and administrative expenses were $2.5
million, or 3.3% of net sales, as compared with $1.8 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 thirty-nine weeks ended
September 27, 1996 was $1.1 million, as compared with $0 in the
prior year period. For the thirteen weeks ended September 27,
1996 provision for credit losses was $168,000, 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 thirty-nine weeks ended September 27,
1996 was $10,000, as compared with $141,000 in the prior year
period. For the thirteen weeks ended September 27, 1996,
interest expense was $7,000, as compared with $3,000 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 thirty-nine weeks ended September 27,
1996 was $501,000, as compared with $523,000 in the prior year
period. For the thirteen weeks ended September 27, 1996,
interest income was $164,000, as compared with $175,000. 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 thirty-nine weeks ended
September 27, 1996 was $7.3 million, or an effective tax rate of
38.5% as compared with $4.9 million, or an effective tax rate of
36.7% 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 September 27, 1996, the Company's net working capital was
$19.7 million, including $4.2 million in cash and cash
equivalents and $650,000 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% (6.9% at September 27,
1996). The Company's ability to draw upon this line of credit is
dependent upon meeting certain financial ratios and covenants.
At September 27, 1996, the Company no 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% (6.9% at September 27, 1996). The
Company's ability to draw upon this line of credit is dependent
upon meeting certain financial ratios and covenants. At
September 27, 1996, the Company had no borrowings under this
line.
During the thirty-nine weeks ended September 27, 1996, the
Company's cash used in operating activities was approximately
$10.8 million. Cash used in operating activities reflects
originations of installment contracts of $25.7 million, increased
inventory, accounts receivable and prepayments of approximately
$10.8 million. These amounts were partially offset by net income
of $11.7 million and an increase in accounts payable and accrued
liabilities of approximately $12.3 million. Each of these
increases was primarily related to sales growth. Other
significant cash flows included capital expenditures of $3.0
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 September 27, 1996,
the Company's contingent repurchase liability under floor plan
financing arrangements was approximately $88.0 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 announced that it has signed a non-binding letter of
intent for a stock and cash purchase for the assets, liabilities
and the business of SE Management, Inc., a manufactured home
retail company headquartered in Northport, Alabama. Under the
letter of intent, the parties anticipate reaching final agreement
and completing the transaction by November 20, 1996.
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
Not applicable.
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
(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: November 7, 1996 By: /S/
Wendell L. Batchelor,
Chairman, President
and Chief Executive Officer
Date: November 7, 1996 By: /S/
Keith W. Brown, Executive Vice
President, Chief Financial
Officer, Treasurer and
Secretary
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