FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the
--- Securities Exchange Act of 1934 For the quarterly period
ended June 30, 1999.
- 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 0-5555
LIBERTY HOMES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1174256
(State of Incorporation) (IRS Employer Identification No.)
P.O. BOX 35, GOSHEN, INDIANA 46527
(Address of principal executive offices) (ZIP Code)
(219) 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 X No
--- ---
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 August 2, 1999
- ----- -----------------
Class A Common Stock, $1.00 par value 2,191,696
Class B Common Stock, $1.00 par value 1,718,559
1
INDEX
PART I - CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
Pages
-----
General 3
Item 1. Consolidated Financial Statements -
Liberty Homes, Inc.
Consolidated Balance Sheet, as of
June 30, 1999 and December 31, 1998 4
Consolidated Statement of Income, for the
three months ended June 30, 1999 and 1998 5
Consolidated Statement of Income, for the
six months ended June 30, 1999 and 1998 6
Consolidated Statement of Cash Flows for the
six months ended June 30, 1999 and 1998 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 9-10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
2
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 1998. The results of
operations for the interim period presented are not necessarily indicative of
results to be expected for the year. The information included in this report has
not been examined prior to filing by an independent public accountant, and is
therefore, subject to any adjustments which may result from the year-end
examination of the Company's financial statements. 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.
3
LIBERTY HOMES, INC.
CONSOLIDATED BALANCE SHEET
as of June 30, 1999 and December 31, 1998
JUNE 30, DECEMBER 31,
ASSETS 1999 1998
- ------ ---- ----
Current assets:
Cash and cash equivalents $ 6,724,000 $18,441,000
Short term investments 4,535,000 5,300,000
Receivables 22,932,000 9,107,000
Inventories 15,474,000 13,171,000
Deferred tax asset 2,500,000 2,500,000
Prepayments and other 1,905,000 1,609,000
-------------- --------------
Total current assets 54,070,000 50,128,000
-------------- --------------
Property, plant and equipment:
Land 1,766,000 1,524,000
Buildings and improvements 27,824,000 26,662,000
Machinery and equipment 20,275,000 19,760,000
-------------- --------------
49,865,000 47,946,000
Less accumulated depreciation 22,181,000 20,855,000
-------------- --------------
27,684,000 27,091,000
-------------- --------------
Total assets $81,754,000 $77,219,000
-------------- --------------
-------------- --------------
JUNE 30, DECEMBER 31,
LIABILITIES 1999 1998
- ----------- ---- ----
Current liabilities:
Accounts payable $ 7,888,000 $ 2,699,000
Dividend payable 274,000 277,000
Accrued compensation
and payroll taxes 3,930,000 2,897,000
Income taxes payable 379,000 1,136,000
Other accrued liabilities 9,895,000 12,044,000
-------------- --------------
Total current liabilities 22,366,000 19,053,000
-------------- --------------
Deferred income taxes 2,200,000 2,270,000
-------------- --------------
Minority interest in subsidiaries 1,270,000 969,000
-------------- --------------
Contingent liabilities (see notes)
SHAREHOLDER'S EQUITY
Capital Stock:
Class A, $1 par value
Authorized-7,500,000 Shares
Issued & outstanding-2,192,000
in 1999 & 2,224,000 in 1998 2,192,000 2,224,000
Class B, $1 par value
Authorized-3,500,000 Shares
Issued & outstanding-1,719,000
in 1999 & 1,728,000 in 1998 1,719,000 1,728,000
Other capital 83,000 83,000
Retained earnings 51,924,000 50,892,000
-------------- --------------
Total shareholder's equity 55,918,000 54,927,000
-------------- --------------
Total liabilities and shareholder's
equity $81,754,000 $77,219,000
-------------- --------------
-------------- --------------
4
LIBERTY HOMES, INC.
CONSOLIDATED STATEMENT OF INCOME
for the three months ended June 30, 1999 and 1998
------------
1999 1998
---- ----
Net sales $ 49,133,000 $ 46,320,000
Cost of sales 42,081,000 39,504,000
--------------------- ---------------------
Gross profit 7,052,000 6,816,000
Selling, general and administrative
expenses 4,840,000 4,724,000
--------------------- ---------------------
Operating income 2,212,000 2,092,000
Interest and other income 266,000 239,000
--------------------- ---------------------
Income before minority interest and 2,478,000 2,331,000
income taxes
Minority interest (158,000) (79,000)
Income tax expense (959,000) (926,000)
--------------------- ---------------------
Net income $ 1,361,000 $ 1,326,000
--------------------- ---------------------
--------------------- ---------------------
Share income per outstanding Common
Share - basic and fully diluted $.35 $.34
----- ----
----- ----
Weighted average shares outstanding 3,913,000 3,946,000
--------------------- ---------------------
--------------------- ---------------------
Cash dividend per share:
Class A Common Stock $.07 $.07
----- ----
----- ----
Class B Common Stock $.07 $.07
----- ----
----- ----
5
LIBERTY HOMES, INC.
CONSOLIDATED STATEMENT OF INCOME
for the six months ended June 30, 1999 and 1998
------------
1999 1998
---- ----
Net sales $93,483,000 $ 89,206,000
Cost of sales 80,622,000 77,050,000
--------------------- ---------------------
Gross profit 12,861,000 12,156,000
Selling, general and administrative
expenses 9,759,000 9,266,000
--------------------- ---------------------
Operating income 3,102,000 2,890,000
Interest and other income 557,000 480,000
--------------------- ---------------------
Income before minority interest and 3,659,000 3,370,000
income taxes
Minority interest (291,000) (127,000)
Income tax expense (1,408,000) (1,337,000)
--------------------- ---------------------
Net income $ 1,960,000 $ 1,906,000
--------------------- ---------------------
--------------------- ---------------------
Share income per outstanding Common
Share - basic and fully diluted $.50 $.48
----- ----
----- ----
Weighted average shares outstanding 3,925,000 3,988,000
--------------------- ---------------------
--------------------- ---------------------
Cash dividend per share:
Class A Common Stock $.14 $.14
----- ----
----- ----
Class B Common Stock $.14 $.14
----- ----
----- ----
6
LIBERTY HOMES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended June 30, 1999 and 1998
---------------
1999 1998
---- ----
Cash flows from operating activities:
Net income $ 1,960,000 $ 1,906,000
Adjustment to reconcile net income
to net cash used in operating activities -
Depreciation 1,326,000 1,354,000
Deferred income taxes (70,000) (52,000)
Minority interest 291,000 127,000
Changes in assets and liabilities:
Receivables (13,825,000) (6,038,000)
Income taxes payable (757,000) 347,000
Inventories (2,303,000) (2,255,000)
Prepayments and other (296,000) (116,000)
Accounts payable 5,189,000 3,341,000
Other current liabilities (1,119,000) (1,353,000)
--------------- ---------------
Net cash used in operating activities (9,604,000) (2,739,000)
--------------- ---------------
Cash flows provided by (used in) investing activities --
Additions to property, plant and equipment (1,919,000) (1,912,000)
Redemption of (investment in) short-term investments 765,000 (50,000)
--------------- ---------------
Net cash used in investing activities (1,154,000) (1,962,000)
--------------- ---------------
Cash flows provided by (used in) financing activities -
Cash dividends paid (548,000) (558,000)
Minority interest contributed capital 10,000 --
Retirement of common stock (421,000) (325,000)
--------------- ---------------
Net cash used in financing activities (959,000) (883,000)
--------------- ---------------
Net decrease in cash and cash equivalents (11,717,000) (5,584,000)
--------------- ---------------
Cash and cash equivalents at beginning of period 18,441,000 15,797,000
--------------- ---------------
Cash and cash equivalents at end of period $ 6,724,000 $ 10,213,000
--------------- ---------------
--------------- ---------------
Supplemental disclosures of cash flow information - cash
paid during the period for income taxes $ 2,164,000 $ 1,070,000
--------------- ---------------
--------------- ---------------
7
OTHER INFORMATION
SHORT TERM INVESTMENTS:
Short-term investments consist primarily of certificates of deposits
with original maturities greater than 90 days.
INVENTORIES:
Inventories, consisting primarily of raw materials, are stated at the
lower of cost or market, with cost determined on a first-in, first-out basis.
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 repurchase agreements in excess of the accruals established as of
June 30, 1999 will not have a significant impact on the financial condition of
the Company.
Other Contingencies
Letters of Credit totaling $2,325,000 have been issued to the Company's
insurance carriers who have underwritten the Company's insurance programs.
8
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.
Liquidity and Capital Resources
Cash, cash equivalents and short term investments as of June 30, 1999
and December 31, 1998 were $11,259,000 and $23,741,000, respectively. Working
capital as of June 30, 1999 and December 31, 1998 was $31,704,000 and
$31,075,000, respectively. The decrease of these items has been caused by
accounts receivable and inventory increases as the Company's operations expand
over the normal year-end base, and by the funding of various property, plant and
equipment projects. Also during the six months ended June 30, 1999, the
Company repurchased a total of 41,800 shares of common stock under the program
initiated in 1994 and subsequently amended to acquire up to 700,000 shares of
its common stock.
Results of Operations
Net sales for the second quarter of 1999 were $49,133,000, an increase
of $2,813,000 over the same quarter of 1998, the result of a small increase in
homes sold and some increased prices per home. Net income for the second quarter
of 1999 was $1,361,000 which was a $35,000 increase over the second quarter of
1998.
9
Outlook and Risk Factors
As sales backlogs in the manufactured housing industry are
traditionally short and as dealer inventories do not normally fluctuate
substantially, the orders that the Company receives are indicative of the
day-to-day retail sales activity of its products. Any changes affecting the
desire or ability of retail customers to purchase, such as cost, availability
of credit and unemployment, have an immediate effect on the Company's
operations.
Year 2000
Liberty Homes employs several electronic data processing (EDP) systems
for administrative and reporting purposes. In 1995, the Company began a process
to analyze the need to enhance its systems to accommodate planned growth of the
Company and to meet additional management information needs. As the Company
determined the systems it wished to enhance, it also discovered the need to
ensure all of its systems were able to handle year 2000 dates. This Year 2000
(Y2K) compliance issue then became a part of the Company's EDP enhancement
program. In March of 1996, the Company contracted for an overall upgrade of its
EDP system which, among many things would provide Y2K compliance for a
substantial portion of its EDP systems. This project is well on the way to
completion.
Additionally, the Company has tested and upgraded all of its
information and communication systems hardware for Y2K compliance, installed
software updates containing Y2K compliance code and initiated projects to bring
internally developed systems into Y2K compliance. Overall, the Company plans to
be done with all of its Y2K compliance efforts by September 30, 1999. Because of
the positive results of its
10
remediation efforts to date, the Company does not have a contingency plan,
nor does it intend to create one at this time.
The Company's manufacturing processes do not utilize systems that are
materially reliant on Y2K compliance. Therefore, the Company's ability to
generate product will not be adversely affected by any Y2K issues.
The Company sells its product to numerous independent dealers, none of
which account for a material portion of the Company's sales. The Company
believes the risk of Y2K noncompliance associated with its dealer group is not
significant.
The Company's operations rely on a variety of suppliers, wholesale and
retail finance sources, transportation companies and utilities. The Company is
not aware of any material compliance problems with these vendors, however, it
will continue to monitor the sufficiency of this group's Y2K compliance efforts.
Liberty Homes believes the sole failure of any vendor would not have a material
adverse effect on the Company's business.
The total cost to date and expected future cost for Y2K remediation is
not material. Internally generated funds are the source of funding these
compliance costs.
The Company believes that its Y2K compliance efforts will significantly
reduce the risk of any material adverse business interruptions caused by
noncompliance. However, this statement should not be considered a guarantee of
such a reduction in risk.
11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 - Financial Data Schedule
No reports on Form 8-K for April, May or June, 1999 have been filed.
12
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
BY: /s/ MARC A. DOSMANN
----------------------------------------------
Marc A. Dosmann
Vice President - Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated August 14, 1999
------------------
13