FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
(Mark One)
ý | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the quarterly period ended March 31, 2002. |
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— or — |
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o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the Transition Period From to . |
Commission File Number 0-5555
LIBERTY HOMES, INC.
(Exact name of registrant as specified in its charter)
Indiana | | 35-1174256 |
(State of Incorporation) | | (IRS Employer Identification No.) |
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PO Box 35, Goshen, Indiana | | 46527 |
(Address of principal executive offices) | | (ZIP Code) |
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574.533.0431 |
(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 ý No o
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
| | Shares of Outstanding |
Class | | at May 4, 2002 |
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Class A Common Stock, $1.00 par value | | 2,085,645 |
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Class B Common Stock, $1.00 par value | | 1,659,422 |
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INDEX
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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 2001. 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.
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LIBERTY HOMES, INC.
CONSOLIDATED BALANCE SHEET
as of March 31, 2002 and December 31, 2001
| | March 31, | | December 31, | |
| | 2002 | | 2001 | |
ASSETS | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | | $ | 4,157,000 | | $ | 7,223,000 | |
Short term investments | | 300,000 | | 300,000 | |
Receivables | | 9,572,000 | | 10,506,000 | |
Inventories | | 13,453,000 | | 12,567,000 | |
Deferred tax asset | | 2,366,000 | | 2,820,000 | |
Income taxes refundable | | 1,347,000 | | 362,000 | |
Prepayments and other | | 2,151,000 | | 2,248,000 | |
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Total current assets | | 33,346,000 | | 36,026,000 | |
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Land | | 2,412,000 | | 2,412,000 | |
Buildings and improvements | | 29,597,000 | | 29,549,000 | |
Machinery and equipment | | 22,143,000 | | 21,840,000 | |
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| | 54,152,000 | | 53,801,000 | |
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Less accumulated depreciation | | 28,885,000 | | 28,328,000 | |
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| | 25,267,000 | | 25,473,000 | |
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Total assets | | $ | 58,613,000 | | $ | 61,499,000 | |
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LIABILITIES | | | | | |
Current liabilities: | | | | | |
Accounts payable | | $ | 3,444,000 | | $ | 2,651,000 | |
Floorplan notes payable | | 2,233,000 | | 2,383,000 | |
Accrued compensation & payroll taxes | | 1,283,000 | | 1,055,000 | |
Other accrued liabilities | | 4,474,000 | | 6,906,000 | |
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Total current liabilities | | 11,434,000 | | 12,995,000 | |
Deferred income taxes | | 2,450,000 | | 2,450,000 | |
Minority interest in consolidated subsidiaries | | 1,069,000 | | 1,097,000 | |
Contingent liabilities (see notes) | | — | | — | |
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SHAREHOLDER’S EQUITY | | | | | |
Capital Stock: | | | | | |
Class A, $1 par value | | | | | |
Authorized—7,500,000 Shares | | | | | |
Issued & outstanding—2,086,000 in 2002 & 2,088,000 in 2001 | | 2,086,000 | | 2,088,000 | |
Class B, $1 par value | | | | | |
Authorized—3,500,000 Shares | | | | | |
Issued & outstanding—1,659,000 in 2002 & 1,665,000 in 2001 | | 1,659,000 | | 1,665,000 | |
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Other capital | | 83,000 | | 83,000 | |
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Retained earnings | | 39,832,000 | | 41,121,000 | |
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| | 43,660,000 | | 44,957,000 | |
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Total liabilities and stockholder’s equity | | $ | 58,613,000 | | $ | 61,499,000 | |
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LIBERTY HOMES, INC.
CONSOLIDATED STATEMENT OF INCOME
for the three months ended March 31, 2002 and 2001
| | 2002 | | 2001 | |
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Net sales | | $ | 21,899,000 | | $ | 24,761,000 | |
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Cost of sales | | 19,292,000 | | 21,673,000 | |
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Gross profit | | 2,607,000 | | 3,088,000 | |
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Selling, delivery, general and administrative | | | | | |
Expenses | | 4,115,000 | | 4,861,000 | |
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Operating loss | | (1,508,000 | ) | (1,773,000 | ) |
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Interest expense | | (46,000 | ) | (130,000 | ) |
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Interest and other income | | 26,000 | | 126,000 | |
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Loss before minority interest and income taxes | | (1,528,000 | ) | (1,777,000 | ) |
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Minority interest | | 28,000 | | (6,000 | ) |
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Income tax benefit | | 519,000 | | 669,000 | |
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Net loss | | $ | (981,000 | ) | $ | (1,114,000 | ) |
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Share loss per outstanding Common Share — basic and fully diluted | | $ | (0.26 | ) | $ | (0.30 | ) |
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Weighted average shares outstanding | | 3,749,000 | | 3,753,000 | |
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Cash dividend per share: | | | | | |
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Class A Common Stock | | $ | 0.07 | | $ | 0.07 | |
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Class B Common Stock | | $ | 0.07 | | $ | 0.07 | |
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LIBERTY HOMES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
for the three months ended March 31, 2002 and 2001
| | 2002 | | 2001 | |
Cash flows from operating activities | | | | | |
Net loss | | $ | (981,000 | ) | $ | (1,114,000 | ) |
Adjustment to reconcile net income to net cash used in operating activities | | | | | |
Depreciation | | 557,000 | | 666,000 | |
Net book value of retail center fixed assets written off | | — | | 151,000 | |
Minority interest | | (28,000 | ) | 5,000 | |
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Changes in assets and liabilities: | | | | | |
Receivables | | 934,000 | | (116,000 | ) |
Inventories | | (886,000 | ) | (909,000 | ) |
Prepayments and other | | 97,000 | | 42,000 | |
Accounts payable | | 793,000 | | 360,000 | |
Other current liabilities | | (2,204,000 | ) | (1,873,000 | ) |
Income taxes receivable/payable | | (531,000 | ) | (677,000 | ) |
Total adjustments | | (1,268,000 | ) | (2,351,000 | ) |
Net cash used in operating activities | | (2,249,000 | ) | (3,465,000 | ) |
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Cash flows used in investing activities | | | | | |
Additions to property, plant and equipment | | (351,000 | ) | (194,000 | ) |
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Net cash used in investing activities | | (351,000 | ) | (194,000 | ) |
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Cash flows provided by (used in) financing activities | | | | | |
Cash dividends paid | | (262,000 | ) | (263,000 | ) |
Proceeds from notes payable | | 311,000 | | 1,717,000 | |
Payments of notes payable | | (461,000 | ) | (829,000 | ) |
Retirement of common stock | | (54,000 | ) | — | |
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Net cash provided by (used in) financing activities | | (466,000 | ) | 625,000 | |
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Net decrease in cash and cash equivalents | | (3,066,000 | ) | (3,034,000 | ) |
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Cash and cash equivalents at beginning of period | | 7,223,000 | | 4,896,000 | |
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Cash and cash equivalents at end of period | | $ | 4,157,000 | | $ | 1,862,000 | |
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Supplemental disclosures of cash flow information | | | | | |
Cash paid during the period for income taxes | | — | | — | |
Cash paid for interest expense | | $ | 46,000 | | $ | 150,000 | |
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OTHER INFORMATION
SHORT TERM INVESTMENTS:
Short-term investments consist primarily of certificates of deposits with original maturities greater than 90 days.
INVENTORIES:
Inventories are stated at the lower of cost or market, with cost determined on a first-in, first-out basis. Inventories at March 31, 2002 consist of:
Raw Material | | $ | 5,970,000 | |
Work in Progress | | 2,038,000 | |
Finished goods | | 5,445,000 | |
| | $ | 13,453,000 | |
NOTES PAYABLE:
At March 31, 2002, the Company had the following notes payable:
Revolving credit line of $8,500,000 secured by subsidiaries’ retail inventory bearing interest at 1/2% over prime rate | | $ | 2,233,000 | |
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Unsecured revolving credit line of $5,000,000 bearing interest at 1/2% under prime | | —0— | |
| | $ | 2,233,000 | |
CONTINGENT LIABILITIES:
Repurchase Obligations — The Company is contingently liable under terms of repurchase agreements with various financial institutions which provide for the repurchase of its homes sold to dealers under floor plan financing arrangements upon dealer default. The Company’s exposure to loss under such agreements is reduced by the resale of the repurchased home. The Company believes any losses incurred under outstanding
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repurchase agreements in excess of the accruals established as of March 31, 2002 will not have a significant impact on the financial condition of the Company. However, any substantial increases in dealer defaults after March 31, 2002 may cause the Company to incur additional losses due to repurchase activity.
REVENUE RECOGNITION:
The Company recognizes revenue when the product is shipped to independent dealers.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
Net sales for the first quarter of 2002 were $21,899,000, a decrease of $2,862,000 or 12% from the same quarter of 2001. Credit at both the wholesale and retail level continues to adversely affect the industry as well as the Company through tighter underwriting standards and further fallout of major lending institutions. As wholesale credit availability has fallen, dealers have been forced into reducing inventories of stock units by not replacing them when sold. As this reduction process levels out, factory orders should follow retail sales activity more closely. Chattel mortgage availability has been quite restricted and has, to a large extent, kept consumers out of this portion of the market. Although credit institutions have lessened the pace of repossessions, second-hand units continue to provide competitive alternatives to new factory orders.
During the quarter, the Company continued its cost control measures in response to the soft market for its homes. In spite of lower sales, the Company was able to reduce the
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loss during the current quarter with a net loss of $981,000 compared to a net loss of $1,114,000 during the quarter a year ago.
Liquidity and Capital Resources
Liquidity and capital resources dropped slightly from the Company’s position at December 31, 2001. Cash, cash equivalents and short term investments as of March 31, 2002 and December 31, 2001 were $4,457,000 and $7,523,000, respectively. Working capital as of March 31, 2002 and December 31, 2001 was $21,912,000 and $23,031,000, respectively. Expenditures for property, plant and equipment and operations were the main uses of capital resources during the quarter. The Company anticipates that cash flow from operations will be sufficient to meet the Company’s foreseeable requirements.
Outlook and Risk Factors
The dynamics that propelled the manufacturing component of the industry into its current slump, tight credit and continued competition with repossessed homes, will continue to affect near term performance. These factors adversely affect new home orders resulting in lower sales. While these lower sales have created significant challenges to attain profitability, the resultant cost controls and reduction of the industry’s manufacturing capacity will bear favorable results in a market upturn.
Since the Company produces only to dealer orders and sales backlogs are traditionally short, the order activity at the Company is indicative of the day to day retail sales activity of its products. Changes affecting retail customer demand, such as cost, availability of credit and unemployment, may have an immediate effect on the Company’s
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operations.
It is a common practice for manufactured housing producers to participate in dealer financing programs which require the manufacturer to repurchase homes which remain unsold and in dealer inventory within a certain time period following delivery to the dealer, if the dealer defaults on its financing obligations. When initiated, this repurchase obligation brings homes back into the wholesale market and may result in some discounting as the units are resold. Currently, the industry has a significant level of these repurchased homes as well as homeowner repossessions that will compete with future orders to factories for new homes. The Company believes the reserves accrued at March 31, 2002 are adequate for known repurchase requirements that it may have at that date. However, any substantial increases in dealer defaults after March 31, 2002 may cause the Company to incur additional losses due to repurchase activity.
Forward Looking Information
The discussion above contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include statements regarding industry and company outlooks and risk factors. The Company may make other forward looking statements orally or in writing from time to time. All such forward looking statements are not guaranties of future events or performance and involve risks and uncertainties. Actual results may differ materially from those in the forward looking statements as the result of a number of material factors. These factors include without limitation, the availability of financing credit at both the wholesale and retail level, the availability of a competent workforce, the regulation of the industry at the federal, state and
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local levels, changes in interest rates, the stability of dealer distribution networks, unanticipated results in pending legal proceedings and the condition of the economy and its effect on consumer confidence.
PART II — OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8–K
No reports on Form 8–K for January, February or March, 2002 have been filed.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LIBERTY HOMES, INC. |
Registrant |
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BY: /s/ Marc A. Dosmann |
Marc A. Dosmann |
Vice President — Chief Financial Officer |
(Principal Financial and Accounting Officer) |
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