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 April 4, 2003 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.)
144 Corporate Way, P.O. Box 390, Addison, Alabama 35540
- ------------------------------------------------- ------
(Address of principal executive offices) (Zip Code)
(256) 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 by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
12,133,865 shares of Common Stock, $.0001 par value, as of May 8, 2003
----------------------------------------------------------------------
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
INDEX
Page
PART I FINANCIAL INFORMATION:
Item 1 Financial Statements
Consolidated Condensed Balance Sheets (unaudited),
April 4, 2003 and January 3, 2003 3
Consolidated Condensed Statements of Operations (unaudited) - Thirteen
Weeks Ended April 4, 2003 and March 29, 2002 4
Consolidated Condensed Statements of Cash Flows (unaudited) - Thirteen
Weeks Ended April 4, 2003 and March 29, 2002 5
Notes to Consolidated Condensed Financial Statements (unaudited) 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3 Quantitative and Qualitative Disclosure of Market Risk 18
Item 4 Controls and Procedures 18
PART II OTHER INFORMATION:
Item 1 Legal Proceedings 19
Item 6 Exhibits and Reports on Form 8-K 19
SIGNATURES 20
CERTIFICATIONS 21
2
I. FINANCIAL INFORMATION
Item 1. Financial Statements
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
April 4, January 3,
2003 2003
-------------- --------------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,649,000 $ 6,960,000
Accounts receivable (less allowance for doubtful accounts of
$339,000 and $323,000, respectively) 8,617,000 6,740,000
Inventories 9,079,000 7,280,000
Refundable income taxes 4,191,000 4,191,000
Prepayments and other 1,163,000 483,000
Current assets of discontinued operations 259,000 800,000
-------------- --------------
27,958,000 26,454,000
PROPERTY AND EQUIPMENT:
Property and equipment, at cost 31,684,000 31,636,000
Less accumulated depreciation (16,107,000) (15,613,000)
-------------- --------------
15,577,000 16,023,000
INTANGIBLES AND OTHER ASSETS:
Goodwill 3,305,000 3,305,000
Investment in joint ventures 4,147,000 4,300,000
Other assets 966,000 958,000
Non-current assets of discontinued operations 359,000 688,000
-------------- --------------
8,777,000 9,251,000
-------------- --------------
$ 52,312,000 $ 51,728,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 3,502,000 1,694,000
Accrued liabilities 11,171,000 10,754,000
Current liabilities of discontinued operations 90,000 320,000
-------------- --------------
14,763,000 12,768,000
-------------- --------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value, 1,000,000 shares authorized,
none outstanding -- --
Common stock, $.0001 par value, 40,000,000 shares authorized,
12,133,865 issued and outstanding at April 4, 2003 and at
January 3, 2003 1,000 1,000
Capital in excess of par 8,330,000 8,330,000
Retained earnings 29,218,000 30,629,000
-------------- --------------
37,549,000 38,960,000
-------------- --------------
$ 52,312,000 $ 51,728,000
============== ==============
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Thirteen Weeks Ended
----------------------------
April 4, March 29,
2003 2002
------------ ------------
(Restated - see
Note 2)
Net revenues $ 28,044,000 $ 31,104,000
Cost of sales 24,236,000 25,386,000
------------ ------------
Gross profit 3,808,000 5,718,000
Operating expenses:
Selling, general and administrative 5,228,000 5,427,000
------------ ------------
Operating income (loss) (1,420,000) 291,000
Interest expense (145,000) (194,000)
Interest income 18,000 8,000
------------ ------------
Income (loss) from continuing operations
before income taxes (1,547,000) 105,000
Income taxes -- --
------------ ------------
Income (loss) from continuing operations (1,547,000) 105,000
Income (loss) from discontinued operations
136,000 (903,000)
------------ ------------
Net loss $ (1,411,000) $ (798,000)
============ ============
Basic and diluted earnings per share:
Income (loss) from continuing
operations $ (0.13) $ 0.01
Income (loss) from discontinued
operations 0.01 (0.07)
------------ ------------
Net loss $ (0.12) $ (0.06)
============ ============
Weighted average number of common
shares:
Basic 12,133,865 12,133,865
Diluted 12,133,865 12,428,250
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirteen Weeks Ended
----------------------------------
April 4, March 29,
2003 2002
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES: (Restated -
see Note 2)
Income (loss) from continuing operations $ (1,547,000) $ 105,000
Adjustments to reconcile income (loss) from continuing operations to net
cash used in operating activities:
Equity in income of joint ventures (5,000) (85,000)
Depreciation of property and equipment 542,000 603,000
Amortization of intangibles 13,000 13,000
Loss on sale of property and equipment 28,000 7,000
Amortization of debt issuance costs 92,000 92,000
Provision for doubtful accounts receivable (16,000) 17,000
Change in assets and liabilities:
Inventories (1,799,000) (951,000)
Accounts receivable (1,861,000) (2,502,000)
Refundable income taxes, prepayments and other (793,000) (1,580,000)
Accounts payable 1,808,000 2,786,000
Accrued liabilities 417,000 850,000
--------------- ---------------
Net cash used in operating activities (3,121,000) (645,000)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (124,000) (70,000)
Investments in joint ventures (17,000) (196,000)
Distribution from joint ventures 175,000 160,000
Proceeds from sale of property and equipment -- 47,000
--------------- ---------------
Net cash provided by (used in) investing activities 34,000 (59,000)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments on notes payable -- (637,000)
Payment of debt issuance costs -- (30,000)
--------------- ---------------
Net cash used in financing activities -- (667,000)
--------------- ---------------
Net cash and cash equivalents used in continuing operations (3,087,000) (1,371,000)
Net cash and cash equivalents provided by discontinued operations 776,000 1,043,000
--------------- ---------------
Net decrease in cash and cash equivalents (2,311,000) (328,000)
--------------- ---------------
Cash and cash equivalents at the beginning of period 6,960,000 328,000
--------------- ---------------
Cash and cash equivalents at the end of period $ 4,649,000 $ --
=============== ===============
The accompanying notes are an integral part of these consolidated
condensed financial statements.
5
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
The consolidated condensed balance sheet as of January 3, 2003, which has been
derived from audited financial statements, and the unaudited consolidated
condensed financial statements as of April 4, 2003, have been prepared by the
Company without audit, but in the opinion of management reflect the adjustments
necessary (which include only normal recurring adjustments) for the fair
presentation of the information set forth therein. Results of operations for
the interim 2003 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 accounting
principles generally accepted in the United States 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 Annual Report on Form 10-K for the
fiscal year ended January 3, 2003 as filed with the Securities and Exchange
Commission.
STOCK-BASED COMPENSATION
Under fixed stock option plans, stock options may be granted to employees and
directors at exercise prices that are equal to, less than, or greater than the
fair market value of the Company's stock on the date of grant. Compensation
expense, equal to the difference in exercise price and fair market value on the
date of grant, is recognized over the vesting period for options granted at
less than fair market value.
In accordance with the disclosure provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, the Company has elected to apply Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations in accounting for its stock based plans. Accordingly,
the Company has recognized no compensation expense for these plans during the
quarters ended April 4, 2003 and March 29, 2002. Had the Company accounted for
its stock-based compensation plans based on the fair value of awards granted
consistent with the methodology of SFAS 123, the Company's reported net loss
and loss per share for each of the quarters ended April 4, 2003 and March 29,
2002 would have been affected as indicated below. The effects of applying SFAS
123 on a pro forma basis for the quarters ended April 4, 2003 and March 29,
2002, are not likely to be representative of the effects on reported pro forma
net income for future years as options vest over several years and as it is
anticipated that additional grants will be made in future years.
Thirteen weeks ended
----------------------------------
April 4, 2003 March 29, 2002
--------------- ---------------
Net loss - as reported $ (1,411,000) $ (798,000)
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all
awards (46,000) (15,000)
--------------- ---------------
Net loss -pro forma $ (1,457,000) $ (813,000)
=============== ===============
As reported - net loss per share $ (0.12) $ (0.06)
Pro forma- net loss per share $ (0.12) $ (0.07)
2. DISCONTINUED OPERATIONS:
In 2002, the Company closed eleven retail centers that were formerly part of
the retail segment. These retail centers had been negatively affected by weak
market conditions and restrictive retail financing conditions, principally as a
result of the withdrawal of several lenders from the market. The decision to
close the retail centers was based primarily on management's evaluation of
recent operating results and future prospects. These centers were sold or
closed by the end of December 2002.
The Company also sold its consumer financing segment, principally consisting of
its Wenco loan portfolio, in December 2002. The Wenco loan portfolio had a book
value of approximately $11.8 million. The loan portfolio was sold for $6.1
million in a cash transaction. The decision to sell the loan portfolio was
prompted
6
by management's strategic plan to eliminate unprofitable business lines and
thereby allow the Company to focus on its core manufacturing business.
Accordingly, as required by FASB Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("SFAS 144"), the operating results
and disposal of the eleven retail centers and the Wenco loan portfolio, which
were previously reported in the retail and consumer financing segments, have
been classified in discontinued operations for all prior periods presented
herein. The Company recognized income of $136,000 from discontinued operations
in the quarter ended April 4, 2003. As required by SFAS 144, any further
operating income or losses, as well as adjustments to exit costs accruals (if
any), will be reported in discontinued operations as incurred, or when
circumstances warrant revisions of the related accounts. Operating results of
the discontinued operations were as follows:
Thirteen Weeks Ended
-------------------------------
April 4, March 29,
2003 2002
-------------- --------------
Net revenues $ 1,149,000 $ 4,295,000
Net income (loss) $ 136,000 $ (903,000)
Assets and liabilities of the discontinued operations have been reflected in
the consolidated balance sheets as current or non-current based on the original
classification of these accounts, net of any necessary valuation allowances.
Although we believe we have appropriately reduced the carrying value of the
assets to their estimated recoverable amounts, net of disposal cost where
appropriate, actual results could be different and the difference will be
reported in discontinued operations in future periods.
Net assets of the discontinued operations are as follows:
April 4, 2003 January 3, 2003
-------------- ---------------
CURRENT ASSETS:
Inventories $ 213,000 $ 675,000
Prepayments and other 46,000 125,000
-------------- --------------
Total current assets: 259,000 800,000
NON -CURRENT ASSETS:
Installment contracts receivable 197,000 342,000
Property, plant and equipment 161,000 344,000
Other assets 1,000 2,000
-------------- --------------
Total non - current assets: 359,000 688,000
Current liabilities (90,000) (320,000)
-------------- --------------
Net assets of discontinued operations $ 528,000 $ 1,168,000
============== ==============
There are no material contingent liabilities, including environmental
liabilities or litigation, related to the closed retail centers or the consumer
finance business discontinued in 2002.
3. INVENTORIES:
Inventories are valued at first-in, first-out ("FIFO") cost, which is not in
excess of market. An analysis of inventories follows:
April 4, January 3,
2003 2003
-------------- --------------
Raw materials $ 3,768,000 $ 3,725,000
Work-in-progress 650,000 570,000
Finished goods 4,661,000 2,985,000
-------------- --------------
$ 9,079,000 $ 7,280,000
============== ==============
4. EARNINGS PER SHARE:
Basic earnings per share ("EPS") excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number of
shares outstanding during the subject period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock are
7
exercised or converted into common stock or result in the issuance of common
stock that will share in the earnings of the Company.
The following reconciliation details the numerators and denominators used to
calculate basic and diluted earnings per share for the respective periods:
Thirteen Weeks Ended
--------------------------------
April 4, March 29,
2003 2002
-------------- --------------
Income (loss) from continuing operations $ (1,547,000) $ 105,000
Income (loss) from discontinued operations 136,000 (903,000)
-------------- --------------
Net loss $ (1,411,000) $ (798,000)
============== ==============
Average shares outstanding:
Basic 12,133,865 12,133,865
Add: dilutive effect of options issued -- 294,385
-------------- --------------
Diluted 12,133,865 12,428,250
============== ==============
Earnings per share - basic and diluted:
Income (loss) from continuing operations $ (0.13) $ 0.01
Income (loss) from discontinued operations 0.01 (0.07)
-------------- --------------
Net loss $ (0.12) $ (0.06)
============== ==============
5. INVESTMENTS IN JOINT VENTURES
The Company owns interests in five joint ventures. The Company owns a 39%
interest in WoodPerfect, Ltd., a manufacturing joint venture, which produces
rafters used in the production of homes manufactured by the Company and others.
The Company owns a 50% interest in Wenco 21, LLC, an entity that originates
installment loans for the purchase of homes manufactured by the Company and
others. The Company owned 33% of Ridge Pointe Mfg., LLC, which manufactures
cabinet doors for sale to participants in the joint venture as well as
third-party customers. The Ridge Pointe Mfg., LLC interest was sold in May
2002. The Company also owns 30% of WoodPerfect of Texas, Inc., which
manufactures rafters used in the production of manufactured homes. The Company
owns a 33% interest in Hillsboro Manufacturing, Inc., which manufactures
laminate wallboard. The Company owns 32% of Lamraft LLP which is a real estate
holding company that leases facilities to a third party.
The Company's investments in and advances to unconsolidated joint ventures
amounted to $4.1 million and $4.3 million at April 4, 2003 and January 3, 2003,
respectively. The Company's equity in the net earnings of these ventures was
$5,000 and $85,000 for the thirteen weeks ended April 4, 2003 and March 29,
2002, respectively. The Company received cash distributions from joint venture
investments of $175,000 and $160,000 for the thirteen weeks ended April 4, 2003
and March 29, 2002, Retained earnings at April 4, 2003 and March 29, 2002,
included undistributed earnings of joint ventures of $0.5 million and $1.2
million, respectively.
The Company's significant joint ventures are Wenco 21 and WoodPerfect, Ltd The
Company accounts for both investments by the equity method of accounting.
8
A summary of the joint ventures' financial information is as follows:
As of
--------------------------------
April 4, 2003 January 3, 2003
-------------- ---------------
Current assets $ 5,822,000 $ 5,855,000
Non current assets 24,755,000 24,787,000
-------------- --------------
Total assets 30,577,000 30,642,000
Current liabilities 3,056,000 2,470,000
Non current liabilities 20,075,000 20,674,000
-------------- --------------
Total liabilities 23,131,000 23,144,000
Stockholder's equity 7,511,000 7,498,000
Company equity investment 4,249,000 4,419,000
Thirteen Weeks Ended
-------------------------------
April 4, 2003 March 29, 2002
-------------- --------------
Revenues $ 5,715,000 $ 8,076,000
Cost of sales 5,166,000 7,016,000
-------------- --------------
Gross profit 549,000 1,060,000
Operating income 11,000 287,000
Net income 13,000 281,000
6. RECENT ACCOUNTING PRONOUNCEMENTS:
In June 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations, SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. It applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and/or the normal operation of a
long-lived asset, except for certain obligations of lessees. SFAS 143 is
effective for financial statements issued for fiscal years beginning after June
15, 2002. The adoption of SFAS 143 did not have any impact in the first quarter
of 2003 on the Company's financial position, results of operations or cash
flows.
In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest
Entities, an interpretation of Accounting Research Bulletin No. 51. The
Interpretation addresses consolidation by a business of variable interest
entities in which it is the primary beneficiary. FIN No. 46 is effective
immediately for certain disclosure requirements and for variable interest
entities created after January 1, 2003, and in the first fiscal year or interim
period beginning after June 15, 2003 for all other variable interest entities.
The Company is in the process of determining the effects, if any, on its
financial position, results of operations and cash flows that will result from
the adoption of FIN No. 46.
In July 2002, the FASB issued SFAS 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS 146 addresses the recognition, measurement
and reporting of costs that are associated with exit and disposal activities,
including restructuring activities that are currently accounted for pursuant to
the guidance set forth in EITF No 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity. SFAS 146
revises the accounting for certain lease termination costs and employee
termination benefits, which are generally recognized in connection with
restructuring activities. Adoption of this standard as of January 4, 2003 had
no impact on the Company's financial position, results of operations or cash
flows for the thirteen weeks ended April 4, 2003.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, an Interpretation of FASB Statements No. 5, 57, and 107
and Rescission of FASB Interpretation No. 32 ("FIN 45"). FIN 45 clarifies the
requirements of FASB Statement No. 5, Accounting for Contingencies, relating to
a guarantor's accounting for, and disclosure of, specified types of guarantees.
FIN 45 requires that upon issuance of a guarantee, the entity (i.e., the
guarantor) must recognize a liability for the fair value of the obligation it
assumes under that guarantee. The disclosure provisions of FIN 45 are effective
for financial statements of interim or annual periods that end after December
15, 2002. FIN 45's provisions for initial recognition and measurement must be
applied on a prospective basis to guarantees issued or modified after December
31, 2002, irrespective of the guarantor's fiscal year end. The guarantor's
previous accounting for guarantees that were issued before the date of FIN 45's
initial application may not be revised or restated to reflect the effect of the
recognition and measurement provisions of FIN 45. The Company has guarantees
that are subject to the disclosure provisions of FIN 45. See Note 7 "Repurchase
Agreements". The adoption of the prospective recognition and measurement
aspects of FIN 45 did not have a material effect on the Company's financial
position, results of operations or cash flows.
9
7. REPURCHASE AGREEMENTS:
Substantially all of the Company's independent 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 independent 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 independent dealer, to repurchase the homes at the
Company's original invoice price less cost of all damaged/missing items and
less certain curtailments, plus certain administrative and shipping expenses.
Repurchases were $466,000 and $997,000 for the quarter ended April 4, 2003 and
March 29, 2002 respectively. Losses on homes repurchased under these agreements
were $129,000 and $198,000 for the quarter ended April 4, 2003 and March 29,
2002 respectively. At April 4, 2003 the Company had a reserve of $250,000 for
future repurchase losses. At April 4, 2003, the Company's contingent repurchase
liability under floor plan financing arrangements through independent dealers
was approximately $36 million. While homes that have been repurchased by the
Company under floor-plan financing arrangements are usually sold to other
dealers, 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, those arrangements. The
Company is also obligated to repurchase homes financed by Wenco 21, LLC upon a
third payment default for 50% of the outstanding loan balance. The Company's
potential exposure under this commitment is approximately $4.5 million.
8. LEGAL PROCEEDINGS:
The Company is a party to various legal proceedings incidental to its business.
The Company typically issues a one-year warranty on new manufactured homes. The
Company provides for warranty costs at the time of sale in the ordinary course
based on historical warranty experience. The majority of the Company's
outstanding legal proceedings are claims related to warranty on manufactured
homes or employment issues such as workers' compensation claims. Management
believes that adequate reserves are maintained for such claims. In the opinion
of management, after consultation with legal counsel, the ultimate liability,
if any, with respect to these proceedings will not materially affect the
financial position or results of operations of the Company; however, the
ultimate resolution of these matters, which could occur within one year, could
result in losses in excess of the amounts reserved. For the quarters ended
April 4, 2003 and March 29, 2002, accrued litigation reserves, (in addition to
normal warranty and workmen's compensation claims reserves) were $1.0 million
and $0.7 million, respectively.
9. SEGMENT AND RELATED INFORMATION:
The Company has three reportable segments: manufacturing, retail operations and
component supply. The manufacturing segment produces manufactured homes for
sale to independent and company-owned retail centers. Although each
manufacturing facility is an operating segment, they are aggregated into one
segment for reporting purposes because they produce similar products using
similar production techniques and they sell their products to the same class of
customer. In addition, they are subject to the same regulatory environment and
their economic characteristics (measured on terms of profitability) are
similar. The retail operations segment sells homes to retail customers which
have been produced by the Company's manufacturing segment and various other
manufacturers. The component supply segment sells various supply products to
the Company's manufacturing segment and to third-party customers.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on total (external and intersegment) revenues, gross profit and segment
operating income. The Company accounts for intersegment sales and transfers as
if the sales or transfers were to third-parties, at current market prices. The
Company does not allocate income taxes to its segments. The Company's
reportable segments are strategic business units that offer different products
and services. They are managed separately because each business requires
different operating and marketing strategies.
Revenue from segments below the quantitative thresholds are attributable to two
other operating segments of the Company which include a trucking business
(closed in July 2001) and a small insurance business. These segments have never
met the quantitative thresholds for determining reportable segments. The
Corporate segment does not generate any revenues, but does incur certain
administrative expenses that are not allocated to reportable segments.
The financial information for the period ended March 29, 2002 concerning
reportable segments has been restated to reflect the reclassification of the
eleven retail centers closed in 2002 and the consumer financing business as
discontinued operations (see Note 2).
10
The following table presents information about segment profit or loss
Thirteen Weeks Ended
---------------------------------
April 4, March 29,
2003 2002
-------------- --------------
Net revenues:
Manufacturing $ 26,639,000 $ 28,874,000
Retail operations 1,427,000 2,848,000
Component supply 5,809,000 5,404,000
All other (45,000) 87,000
Eliminations for intersegment revenues:
Manufacturing (581,000) (1,332,000)
Component supply (5,205,000) (4,777,000)
All other -- --
-------------- --------------
Total net revenues $ 28,044,000 $ 31,104,000
============== ==============
Gross profit:
Manufacturing $ 3,177,000 $ 4,500,000
Retail operations 387,000 531,000
Component supply 417,000 511,000
All other (346,000) (198,000)
Eliminations 173,000 374,000
-------------- --------------
Gross profit
$ 3,808,000 $ 5,718,000
============== ==============
Segment operating income (loss):
Manufacturing $ (525,000) $ 683,000
Retail operations (84,000) (309,000)
Component supply 181,000 306,000
All other 25,000 50,000
Eliminations 172,000 374,000
-------------- --------------
Segment operating income (231,000) 1,104,000
Corporate expenses not allocated to segments (1,316,000) (999,000)
-------------- --------------
Income (loss) from continuing operations $ (1,547,000) $ 105,000
============== ==============
Summary of segment assets:
April 4, January 3,
2003 2003
-------------- ---------------
Segment assets:
Manufacturing $ 19,738,000 $ 16,561,000
Retail operations 3,992,000 4,368,000
Component supply 4,050,000 3,583,000
Corporate 24,810,000 26,725,000
Other operating segments 202,000 9,000
Eliminations (1,098,000) (1,006,000)
Discontinued operations 618,000 1,488,000
-------------- --------------
Consolidated $ 52,312,000 $ 51,728,000
============== ==============
11
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
During the first quarter of fiscal 2003, negative economic factors that have
influenced financial performance of the entire manufactured housing industry
since approximately 1998 continued with more restrictive retail financing
conditions for consumers and slow retail sales.
The Company has taken a number of steps to decrease costs and improve
efficiency and quality. In 2000, 2001, and 2002 these steps included closing
less efficient manufacturing facilities, consolidating divisions, and disposing
of unprofitable retail centers. Due to the unusual wet weather in the southeast
causing slower retail sales and given the current market conditions, during the
first quarter of 2003 and since the close of the quarter, the Company has taken
measures that are intended to reduce costs in the coming quarters to more
closely match sales volume, including consolidation and reduction of several
administration functions.
The Company sells the majority of the homes it produces through its network of
independent home dealers in 22 states. The Company also completed in the first
quarter of 2003 a new supply distribution facility that is intended to enhance
supply distribution by affording the Company the opportunity to take advantage
of bulk purchasing opportunities and manufacturing efficiencies.
DISCONTINUED OPERATIONS
In 2002, the Company closed eleven retail centers that were formerly part of
the retail segment. These retail centers had been negatively affected by weak
market conditions and restrictive retail financing conditions, principally as a
result of the withdrawal of several lenders from the market. The decision to
close the retail centers was based primarily on management's evaluation of
recent operating results and future prospects. These centers were sold or
closed by the end of December 2002.
The Company also sold its consumer financing segment, principally consisting of
the Wenco loan portfolio, in December 2002. The Wenco loan portfolio had a book
value of approximately $11.8 million. The loan portfolio was sold for $6.1
million in a cash transaction. The decision to sell the loan portfolio was
prompted by management's strategic plan to eliminate unprofitable business
lines and thereby allow the Company to focus on its core manufacturing
business.
Accordingly, as required by FASB Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("SFAS 144"), the operating results
and disposal of the eleven retail centers and the Wenco loan portfolio, which
were previously reported in the retail and consumer financing segments, have
been classified in discontinued operations for all prior periods presented
herein. The Company recognized income of $136,000 from discontinued operations
in the quarter ended April 4, 2003 as compared to a loss of $903,000 for the
quarter ended March 29, 2002. As required by SFAS 144, any further operating
losses, as well as adjustments to exit costs accruals (if any), will be
reported in discontinued operations as incurred, or when circumstances warrant
revisions of the related accounts.
CRITICAL ACCOUNTING POLICIES
The Company uses accounting policies that it believes are appropriate to
accurately and fairly report its results of operations and financial position,
and it applies those accounting policies in a consistent manner. The
preparation of the Company's financial statements in conformity with generally
accepted accounting principles requires that the Company's management make
estimates and assumptions that may affect the reported amounts of assets,
liabilities, revenues and expenses. These estimates and assumptions are based
on historical and other factors believed to be reasonable under the
circumstances. The Company evaluates these estimates and assumptions on an
ongoing basis. Actual results can and frequently will differ from these
estimates. It is possible that materially different amounts would be reported
under different conditions or using different methods or assumptions.
12
The Company believes that the following accounting policies are the most
critical ones used in the preparation of its financial statements, because
these are the ones that involve the most significant judgments and estimates
about the effect of matters that are inherently uncertain.
Product Warranties
The Company warrants its products against certain manufacturing defects for a
period of one year commencing at the time of retail sale. The estimated cost of
such warranties is accrued at the time of sale to the independent dealer based
on historical warranty costs incurred. Periodic adjustments to the accrual are
made when events occur that indicate changes are necessary.
Litigation
The Company is a party to various legal proceedings incidental to its business.
The Company typically issues a one-year warranty on new manufactured homes. The
majority of these legal proceedings are claims related to warranty on
manufactured homes or employment issues such as workers' compensation claims.
Management believes that adequate reserves are maintained for such claims. In
the opinion of management, after consultation with legal counsel, the ultimate
liability, if any, with respect to these proceedings will not materially affect
the financial position or results of operations of the Company; however, the
ultimate resolution of these matters, which could occur within one year, could
result in losses in excess of the amounts reserved.
Insurance Arrangements
The Company is partially self-insured for workers compensation and health
insurance claims. The Company purchases insurance coverage for all workers
compensation claims in excess of $350,000 per occurrence, and for all health
care claims in excess of $75,000 per occurrence, with an annual aggregate
stop-loss limit of approximately $5.3 million for all claims. Amounts are
accrued currently for the estimated costs of claims incurred, including related
expenses. Management considers accrued liabilities for unsettled claims to be
adequate. However, there is no assurance that the amounts accrued will not vary
from the ultimate amounts incurred upon final disposition of all outstanding
claims. As a result, periodic adjustments to the reserves will be made as
events occur that indicate changes are necessary.
Repurchase Agreements
Substantially all of the Company's independent 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 independent 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 independent dealer, to repurchase the homes at the
Company's original invoice price less cost of all damaged/missing items and
less certain curtailments, plus certain administrative and shipping expenses.
Repurchases were $466,000 and $997,000 for the quarters ended April 4, 2003 and
March 29, 2002 respectively. Losses on homes repurchased under these agreements
were $129,000 and $198,000 for the quarters ended April 4, 2003 and March 29,
2002 respectively. At April 4, 2003 the Company had a reserve of $250,000 for
future repurchase losses. At April 4, 2003, the Company's contingent repurchase
liability under floor plan financing arrangements through independent dealers
was approximately $36 million. While homes that have been repurchased by the
Company under floor-plan financing arrangements are usually sold to other
dealers, 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, those arrangements. The
Company is also obligated to repurchase homes financed by Wenco 21, LLC upon a
third payment default for 50% of the outstanding loan balance. The Company's
potential exposure under this commitment is approximately $4.5 million.
Impairment of Long-Lived Assets
The Company records impairment losses on long-lived assets used in operations
when events and circumstances indicate that the assets might be impaired and
the undiscounted cash flows estimated to be generated by those assets are less
than the carrying amount of those items. The Company's cash flow estimates are
based on historical results adjusted to reflect the Company's best estimate of
future market and operating conditions. Any material change affecting the
assumptions used to project the estimated undiscounted cash flows or our
expectation of future market conditions could result in a different conclusion.
Assets for which the carrying value is not fully recoverable are reduced to
fair value.
13
Recoverability of Investments
Management periodically assesses the recoverability of the Company's
investments in joint ventures. The significant judgment required in
management's recoverability assessment is the determination of the fair value
of the investment. Since the investments are non-publicly traded investments,
management's assessment of fair value is based on the Company's analysis of the
investee's estimates of future operating results and the resulting cash flows.
Management's ability to accurately predict future cash flows is critical to the
determination of fair value.
In the event a decline in fair value of an investment occurs, management may be
required to make a determination as to whether the decline in market value is
other than temporary. Management's assessment as to the nature of a decline in
fair value is largely based on the Company's estimates of future operating
results, the resulting cash flows and intent to hold the investment. If an
investment is considered to be impaired and the decline in value is considered
to be other than temporary, an appropriate write-down is recorded.
Volume Incentives Payable
Volume incentives are common practice in the industry in which the Company
operates and are accounted for as a reduction to gross sales. The volume
incentives payable is estimated and recorded when sales of products are made.
The payable is adjusted, if necessary, when information becomes available that
indicate revisions are needed.
14
RESULTS OF OPERATIONS
Results of operations for the thirteen weeks ended April 4, 2003 and March 29,
2002 are not necessarily indicative of the results that may be expected for the
entire year, due in part, to the cyclical and seasonal nature of the Company's
business. Typically, sales are higher in the second and third quarters than in
the first and fourth quarters of the year.
Net Revenues
Total net revenues (consisting of gross sales less volume discounts, dealer
interest and returns and allowances) for the thirteen weeks ended April 4, 2003
were $28.0 million, as compared with $31.1 million in the prior year period.
Net revenues from wholesale sales of manufactured homes were $26.6 million
(including intersegment revenues of $0.6 million) for the thirteen weeks ended
April 4, 2003, as compared with $28.9 million (including intersegment revenues
of $1.3 million) for the prior year period, a decline of 8.0%, which compares
to a 26.5 % decrease in industry shipments during the first quarter of 2003
according to the Manufacturing Housing Institute. The decline in sales to
dealers was due to continuing industry decline and difficult credit conditions
for independent dealers. Total homes shipped for the thirteen weeks ended April
4, 2003 was 841, down from the 957 homes shipped in the prior year period. The
average wholesale price per home for the thirteen weeks ended April 4, 2003 was
$30,040, as compared with $28,661 in the prior year period, an increase of
4.8%.
Net revenues from retail sales of manufactured homes from continuing operations
were $1.4 million for the thirteen weeks ended April 4, 2003, as compared with
$2.8 million for the prior year period, a decrease of 50.0%. Total retail homes
sold for the thirteen weeks ended April 4, 2003 was 42, down 40.8% from the
number of homes sold in the prior year period. The decline in retail sales was
primarily attributable to increased competition, the difficulty for retail
customers to obtain financing and a larger percentage of used homes sold in the
first quarter of 2003 compared to the first quarter of 2002. The decline in
retail revenues was offset slightly by an increase in the average retail price
per new home sold. The average retail price per new home sold during the
thirteen weeks ended April 4, 2003 was $50,357, as compared with $46,567 in the
prior year period, an increase of 8.1%. The increase in sales price was due to
more homes sold with more square footage, more customized features and more
options and an increase in land home sales, which carry higher sales prices
because of added land improvement features.
Net revenues from the component supply segment were $5.8 million (including
intersegment revenues of $5.2 million) for the thirteen weeks ended April 4,
2003, as compared with $5.4 million (including intersegment revenues of $4.8
million) for the prior year period, an increase of 7.4%. The increase in supply
sales was primarily attributable to an increase in business to external
customers.
Following are basic operating facts for the thirteen weeks ended for April 4,
2003, and March 29, 2002 respectively:
OPERATING FACTS
Thirteen Weeks ended
April 4, 2003 March 29, 2002(1)
--------------- -----------------
Company owned retail centers (continuing
operations) 3 3
Retail units sold:
New single-section -- 6
New multi-section 18 41
Used homes 24 24
--------------- ---------------
Total 42 71
Wholesale units sold:
External customers 825 921
Intercompany 16 36
--------------- ---------------
841 957
--------------- ---------------
Total homes sold 883 1,028
Average sales prices - retail (new) $ 50,357 $ 46,567
Average sales price - wholesale $ 30,040 $ 28,661
Floor sections produced 1,483 1,684
(1) Summary operating data for the thirteen weeks ended March 29, 2002 have
been restated to exclude discontinued operations of retail center closed
in 2002.
15
Gross Profit
Gross profit consists of net revenues less the cost of sales, which includes
labor, materials, and overhead. Gross profit for the thirteen weeks ended April
4, 2003 was $3.8 million, or 13.6% of net revenues, as compared with $5.7
million, or 18.4% of net revenues, in the prior year period. The reduction in
gross profit and margin was due primarily to less favorable sales mix and
higher material costs compared with the first quarter of 2002. In addition,
margin was affected by the lower sales volume that resulted in an unfavorable
variance on fixed overhead, purchasing variances and higher labor costs
compared with the same quarter last year.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include primarily sales
commissions, advertising expenses, freight costs, salaries for support
personnel, administrative compensation, executive and management bonuses,
insurance costs, and professional fees. Selling, general and administrative
expenses were $5.2 million, or 18.6% of net revenues, during the thirteen weeks
ended April 4, 2003, as compared with $5.4 million, or 17.4% of net revenues,
for the same period of the prior year. The decline in selling, general and
administrative expenses was attributable primarily to lower sales volume, lower
freight expenses, lower legal expenses and lower administrative salaries.
Interest Expense
Interest expense for the thirteen weeks ended April 4, 2003 was $145,000, as
compared with $194,000 in the prior year period. The decrease in interest
expense in the current quarter was a result of lower average borrowings, $0 in
the first quarter of 2003 compared to $10.4 million on the credit line for the
same period of the prior year.
Provision for Income Taxes
Income taxes are provided for based on the tax effect of revenue and expense
transactions included in the determination of pre-tax book income. Because the
Company has operated at a loss in recent fiscal years, management believes that
under the provisions of SFAS 109, it is not appropriate to record income tax
benefits on current losses in excess of anticipated refunds of taxes previously
paid. As a result, the Company has established valuation allowances against the
net deferred tax benefits related to net operating loss carry forwards and
other net deductible temporary differences between financial and taxable
income. The valuation allowance may be reversed in future years if the Company
returns to profitability.
At January 3, 2003, the Company had no federal net operating loss carry
forward. State net operating loss carryforwards amounting to $48.2 million are
available to offset future taxable income in a number of states and they expire
at various dates in 2006 through 2022. The tax losses generated in 2002 and
2001 for federal income tax purposes have been carried back under the temporary
5 year net operating loss carry back rules applicable to 2002 and 2001.
Accordingly, the Company will file a carryback refund claim in 2003 and expects
to receive federal income tax refunds of $4.9 million with respect to the 2002
net operating loss.
LIQUIDITY AND CAPITAL RESOURCES
During the thirteen weeks ended April 4, 2003, cash used in operations was
approximately $3.1 million Net loss from continuing operations for the thirteen
weeks was $1.5 million. Included in the net loss were the following non-cash
charges: amortization expenses of $0.1 million, and depreciation expense of
$0.5 million.
16
Cash used in operating activities also reflected increased accounts receivable
of $2.0 million, increased inventories of $1.8 million, partially offset by an
increase in accounts payable of $1.8 million, and an increase in accrued
liabilities of $0.4 million. In addition to cash provided by operating
activities, other significant items affecting cash flows from continuing
operations included capital expenditures of $0.1 million and net cash from
joint ventures of $0.2 million.
At April 4, 2003 the balance of the revolving credit facility was $0 and the
Company's net working capital from continuing operations was $13.0 million,
including $4.7 million in cash and cash equivalents, as compared with working
capital of $13.2 million at January 3, 2003, including $7.0 million in cash and
cash equivalents. The decline in net working capital was primarily attributable
to a decline in cash and cash equivalents of $2.3 million, and an increase in
accounts payable and accrued liabilities of $2.2, partially offset by an
increase in accounts receivable of $2.0 million, an increase in inventory of
$1.8 million and an increase in prepayments and other of $0.7 million.
During the thirteen weeks ended March 29, 2002, cash used in operations was
approximately $0.6 million Net income from continuing operations for the
thirteen weeks was $0.1 million. Included in net income were the following
non-cash charges: amortization expenses of $0.1 million, and depreciation
expense of $0.6 million. Cash used in operating activities also reflected
increased accounts receivable of $2.5 million, increased inventories of $1.0
million and increased prepayments and other of $1.6 million, partially offset
by an increase in accounts payable of $2.8 million, and an increase in accrued
liabilities of $0.9 million. In addition to cash provided by operating
activities, other significant items affecting cash flows from continuing
operations included capital expenditures of $0.1 million.
At March 29, 2002 the balance of the revolving credit facility was $10.0 and
the Company's net working capital from continuing operations was a negative
$5.1 million, including $0 in cash and cash equivalents, as compared with
working capital of a negative $6.6 million at December 28, 2001, including $0.3
million in cash and cash equivalents. The increase in net working capital was
primarily attributable to an increase in accounts receivable of $2.5 an
increase in inventory of $0.9 million and an increase in prepayments and other
of $1.6 million, partially offset by an increase in accounts payable and
accrued liabilities of $3.6 million.
At April 4, 2003, outstanding borrowings under the $10 million secured bank
line were $0 and availability on the line, which is dependent upon meeting
certain financial ratios and covenants, was $10 million. Management believes
that operating cash flows, together with borrowing capacity under the line,
will provide the Company with adequate liquidity and capital resources through
the remaining term of the bank line.
The Company does not presently have plans to make any material capital
expenditures in the next twelve months.
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.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 Forward-looking statements in this Quarterly Report on Form 10-Q,
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, which could
cause actual results to differ materially from those in any forward looking
statements, including without limitation: general economic conditions; the
cyclical and seasonal nature of housing markets; competitive pricing pressures
at both the wholesale and retail levels; changes in market demand; recent
management changes; the impact of cost reduction programs and other management
initiatives; availability of financing for prospective purchasers of the
Company's homes and availability of floor plan financing for dealers;
availability and pricing of raw materials; concentration of the Company's
business in certain regional markets; adverse weather conditions that reduce
retail sales; the possibility of plant shutdowns from weather or other causes;
availability of labor for the Company to meet operating requirements; the
highly competitive nature of the manufactured housing industry; Federal, state
and local regulation of the Company's business; the Company's contingent
repurchase
17
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.
Item 3.
Quantitative and Qualitative Disclosures of Market Risk.
Historically the Company has not entered into derivatives contracts to either
hedge existing risk or for speculative purposes. The Company also does not and
has not entered into contracts involving derivative financial instruments or
derivative commodity instruments. Although the Company's principal credit
agreement bears a floating interest rate of 1.0% over prime at April 4, 2003,
nothing was outstanding under the credit agreement. Accordingly, the Company
has no significant exposure to interest rate risks.
Item 4. CONTROLS AND PROCEDURES
During the 90-day period prior to the filing of this quarterly report, an
evaluation was performed under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer (CEO)
and Chief Financial Officer (CFO), of the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as defined in
Rules 13a-14(c) and 15d-4(c) under the Securities Exchange Act of 1934, as
amended). Following that evaluation, the Company's management, including the
CEO and CFO, concluded that the Company's disclosure controls and procedures
were effective at that time. There have been no significant changes in the
Company's internal controls, other factors that could significantly affect
internal controls, or significant or material weaknesses with regard to the
Company's internal controls identified by the Company subsequent to that
evaluation.
18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to various legal proceedings incidental to its business.
The Company typically issues a one-year warranty on new manufactured homes. The
majority of these legal proceedings are claims related to warranty on
manufactured homes or employment issues such as workers' compensation claims.
Management believes that adequate reserves are maintained for such claims. In
the opinion of management, after consultation with legal counsel, the ultimate
liability, if any, with respect to these proceedings will not materially affect
the financial position or results of operations of the Company; however, the
ultimate resolution of these matters, which could occur within one year, could
result in losses in excess of the amounts reserved.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits including items incorporated by reference are
filed as a part of this report.
3.1 Certificate of Incorporation of the Company, as amended
(filed as Exhibit 3.1 to the Registration Statement on Form
S-3, Registration No. 333-32933)
3.2 By-Laws of the Company. (Filed as Exhibit 3.2 to the
Registration Statement on Form S-1, Registration No.
33-57420.)
99.1 Certification of chief executive officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002
99.2 Certification of chief financial officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the quarter ended
April 4, 2003:
(1) On January 7, 2003, Southern Energy Homes, Inc. filed a Form 8-K
reporting its announcement on December 24, 2002 of the sale of its
consumer loan portfolio business.
19
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 15, 2003 By: /s/ Keith O. Holdbrooks
------------ ---------------------------------------------
Keith O. Holdbrooks, Chief Executive Officer
Date: May 15, 2003 By: /s/ James L. Stariha
------------ --------------------------------------------
James L. Stariha, Chief Financial Officer
20
CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Keith O. Holdbrooks, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Southern Energy Homes,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ KEITH O. HOLDBROOKS
Keith O. Holdbrooks
Chief Executive Officer
21
CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James L. Stariha, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Southern Energy Homes,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ JAMES L. STARIHA
James L. Stariha
Chief Financial Officer
22