Exhibit 13

THE COMPANY

LIBERTY HOMES, INC.and Subsidiaries design, manufacture and sell a broad line of single and multi-section
manufactured homes to numerous independent dealers throughout most of the United States and to consumers at the Company's retail operations. The Company currently operates manufacturing plants in
Syracuse, Indiana; Yoder, Kansas; Dorchester, Wisconsin; Leola, Pennsylvania; Sheridan, Oregon; Ocala, Florida; Statesville, North Carolina; and Hamilton, Alabama. Corporate offices, including
engineering and design facilities, are located in Goshen, Indiana.

SELECTED FINANCIAL DATA  as of or for the year ending December 31,  (Amounts in Thousands Except per Share Data)

|                            |                      | 2001 |         | 2000 |   | 1999    |     | 1998 |         | 1997
|--------------------------- | -------------------- | ---- | ------- | ---- | - | ------- | --- | ---- | ------- | ----
|Net Sales                   |                      | $    | 112,266 |      | $ | 128,165 |     | $    | 181,736 |     
|Net income (loss)           |                      | $    | (1,574  | )    | $ | (5,916  | )   | $    | 2,162   |     
|Net income (loss) per share |                      | $    | (.42    | )    | $ | (1.53   | )   | $    | .55     |     
|Total assets                |                      | $    | 61,499  |      | $ | 69,769  |     | $    | 75,088  |     
|Long term obligations       |                      |      |        |      |   |        |     |      |        |     
|Cash dividends per share:   |                      |      |         |      |   |         |     |      |         |     
|                            | Class A common stock |      | $       | .28  |   | $       | .28 |      | $       | .28 
|                            | Class B common stock |      | $       | .28  |   | $       | .28 |      | $       | .28 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND  RESULTS OF OPERATIONS

Results of OperationsOperations during 2001 were significantly affected by the continued severe slump
in the manufactured housing industry, which resulted in a 23% industry wide decline in shipments from 2000 to 2001. This decrease follows a 28% industry decline from 1999 to 2000.

Certain
causes of this multi-year slide continued to pressure the industry during 2001. Availability of credit at both the wholesale and retail levels continued to inhibit
the flow of capital necessary to finance home purchases. Several major financing companies ceased doing business in the manufactured housing industry and those that remained instituted stricter
underwriting conditions. Defaults by retail borrowers and dealer failures caused the existence of a substantial number of repossessed homes. Such homes put considerable pressure on the pricing of new
homes and displaced some demand for newly manufactured homes. Dealers who continued in business pared down their inventories in response to lower credit line availability and slower retail activity.

Also,
these factors impacted the Company. Net sales for 2001 were $112,266,000 a $15,899,000 decrease from the year 2000. Net sales in 2000 decreased by $53,571,000 to $128,165,000 from
1999 net sales of $181,736,000. Year to year comparisons of the number of homes shipped by the Company followed the industry trend with a 22% decline in 2001 over 2000 and a 29% decline in 2000 over
1999. The Company's product mix of multi-section homes was 64% and 62% of total shipments for the years 2001 and 2000, respectively. In comparison, the industry mix of multi-section homes was 75% in
2001 and 70% in 2000.

Gross
profit was $16,565,000 or 15% of net sales in 2001, $11,779,000 or 9% of net sales in 2000 and $27,752,000 or 15% of net sales in 1999. In the face of declining revenues, the
Company continued its focus on manufacturing cost controls during 2001, producing successful results. This focus plus the

11

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considerable reduction from the prior year of repurchased home reselling activity, with its attendant discounting, helped the Company make a considerable improvement in gross profit.

Selling,
delivery, general and administrative expenses totaled $18,976,000 in 2001, $22,189,000 in 2000 and $24,586,000 in 1999.

Interest
and other income was $562,000 in 2001, $813,000 in 2000 and $1,099,000 in 1999 and primarily results from interest income earned from the Company's investment of cash. Variances
are due to varying interest rates and the amount of cash available to invest.

Continued
declining sales created a difficult environment in which to operate. The Company was unable to fully counteract this condition and accordingly, operations for the year produced
a net loss of $1,574,000 in 2001 compared to a net loss of $5,916,000 in 2000 and net income of $2,162,000 in 1999.

Liquidity and Capital ResourcesCash and cash equivalents and short-term investments increased during the year to
$7,523,000 at December 31, 2001, compared to $5,246,000 at the end of 2000. Working capital was $23,031,000 at year end 2001 and $23,439,000 at year end 2000.

During
2000, the Company consolidated the operations of two of its manufacturing facilities into nearby production facilities. These two facilities were listed for sale during 2001 with
the appraisal values and asking prices in excess of the net book value of each. At December 31, 2001, the aggregate net book value was $2,921,000.

The
Company is contingently liable to third party financing companies that require the Company, under certain conditions, to repurchase homes it sells to its dealers. During 2000 and
2001, the Company funded all of its repurchase obligations through internal sources. As of December 31, 2001, the Company has made provisions for all obligations of which it is aware plus any
potential repurchases the Company deems likely to be required. Any significant change could place unplanned demands on future cash flows.

The
Company has secured line of credit agreements which provide up to $9,500,000 to finance some of its inventory held for retail sale and an unsecured line of credit of $5,000,000. At
December 31, 2001, $2,383,000 was payable on the secured credit agreements and nothing was borrowed on the unsecured credit line.

The
Company believes that cash flow from operations, cash reserves and credit arrangements currently in place will be sufficient to meet the Company's requirements in the year 2002. The
Company has taken into consideration the current conditions in which the Company operates.

Outlook and Risk FactorsNationally the manufactured housing industry experienced a severe slump which began in
mid-1999. Year on year shipments declined 29% and 23% for the years ended 2000 and 2001, respectively and many of the factors that precipitated this downturn continue to impact the
industry.

Restated
underwriting standards and a reduced number of retail lenders are factors which will affect the industry for the foreseeable future. This constriction of credit will keep many
potential homebuyers out of the marketplace for manufactured housing.

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.

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The
spate of dealer failures that occurred industry-wide in 2000 slowed during 2001. However, it is difficult to project this rate in to the future. Continued fallout among
this part of the distribution chain may disrupt the market.

The
Company's operations run parallel to the forces in the industry and are impacted by the same risk factors. Since the Company produces only to dealers' 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. Any changes affecting retail customer demand, such as cost, unemployment
and the factors previously mentioned, may have an immediate effect on the Company's operations. While the industry experienced a 4% increase of homes shipped in the fourth quarter of 2001 over the
fourth quarter of 2000, the Company's shipments rose 12% for the same comparative periods. Whether or not this quarterly performance is an indicator of the future is unknown.

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 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.

CAPITAL STOCK

The Company's Class A and Class B Common Stock are traded on the NASDAQ Stock Market. As of March 15, 2002, there were approximately 230
holders of record of the Company's Class A Common Stock and approximately 160 holders of record of the Company's Class B Common Stock. The following table shows the high and low closing
bid price per share for the Company's Class A and Class B Common Stock for each of the quarters in 2001 and 2000 as well as cash dividends declared in each quarter in 2001 and 2000.

|                |                | Price per Share ($) |      |  |      | 
|--------------- | -------------- | ------------------- | ---- |  | ---- | 
|
|
|
|First Quarter:  |                |                     |      |  |      | 
|                | Class A Common |                     | 5.19 |  | 4.69 | 
|                | Class B Common |                     | 5.06 |  | 4.88 | 
|Second Quarter: |                |                     |      |  |      | 
|                | Class A Common |                     | 6.30 |  | 5.06 | 
|                | Class B Common |                     | 5.90 |  | 5.00 | 
|Third Quarter:  |                |                     |      |  |      | 
|                | Class A Common |                     | 7.20 |  | 4.90 | 
|                | Class B Common |                     | 7.00 |  | 5.05 | 
|Fourth Quarter: |                |                     |      |  |      | 
|                | Class A Common |                     | 5.99 |  | 4.85 | 
|                | Class B Common |                     | 5.90 |  | 5.75 | 

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March 14, 2002

To
Our Shareholders:

As
mentioned in Management's Discussion and Analysis, the year 2001 provided a second successive year of substantial challenges to the manufactured housing industry and to Liberty
Homes, Inc. Industry over-capacity, excess inventory, tightened credit standards and dealer failures continued to propel the tumultuous environment in which the Company operated.
The Company responded by focusing on new and innovative products, exploring new avenues into the homebuyers' market and by controlling costs.

During
the year 2001, the Company generated net sales of $112,266,000. This amount represents a decrease of $15,899,000 from the prior year. The Company sustained a net loss of
$1,574,000 during the year compared to net loss of $5,916,000 in 2000.

Once
again, we want to take this opportunity to thank our shareholders, employees and suppliers for their efforts and continuing support.

|Very truly yours,                              |  | 
|---------------------------------------------- |  | 
|LIBERTY HOMES, INC.                            |  | 
|                                               |  | 
|/s/ Edward J. HusseyEdward J. Hussey President |  | 
|                                               |  | 
|pkm                                            |  | 

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CONSOLIDATED BALANCE SHEET        December 31, 2001 and 2000        (Amounts in Thousands)

|                               |                                      | 2001                                                                                                                                        |                       | 2000         
|------------------------------ | ------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | -------------
|ASSETS                         |                                      |                                                                                                                                             |                       |              
|Current Assets:                |                                      |                                                                                                                                             |                       |              
|                               | Cash and cash equivalents            |                                                                                                                                             | $                     | 7,223        
|                               | Short term investments               |                                                                                                                                             |                       | 300          
|                               | Receivables                          |                                                                                                                                             |                       | 10,506       
|                               | Inventories                          |                                                                                                                                             |                       | 12,567       
|                               | Deferred tax asset                   |                                                                                                                                             |                       | 2,820        
|                               | Income taxes refundable              |                                                                                                                                             |                       | 362          
|                               | Prepayments and other                |                                                                                                                                             |                       | 2,248        
|                               |                                      |                                                                                                                                             |                       |              
|                               |                                      |                                                                                                                                             | Total current assets  |              
|                               |                                      |                                                                                                                                             |                       |              
|Property, Plant and Equipment: |                                      |                                                                                                                                             |                       |              
|                               | Land                                 |                                                                                                                                             |                       | 2,412        
|                               | Buildings and improvements           |                                                                                                                                             |                       | 29,439       
|                               | Machinery and equipment              |                                                                                                                                             |                       | 21,840       
|                               |                                      |                                                                                                                                             |                       |              
|                               |                                      |                                                                                                                                             | 53,691                |              
|                               | Less accumulated depreciation        |                                                                                                                                             |                       | 28,218       
|                               |                                      |                                                                                                                                             |                       |              
|                               |                                      |                                                                                                                                             | 25,473                |              
|                               |                                      |                                                                                                                                             |                       |              
|                               |                                      | $                                                                                                                                           | 61,499                |              
|                               |                                      |                                                                                                                                             |                       |              
|LIABILITIES                    |                                      |                                                                                                                                             |                       |              
|Current Liabilities:           |                                      |                                                                                                                                             |                       |              
|                               | Accounts payable                     |                                                                                                                                             | $                     | 2,651        
|                               | Floorplan notes payable              |                                                                                                                                             |                       | 1,283        
|                               | Accrued compensation & payroll taxes |                                                                                                                                             |                       | 1,055        
|                               | Other accrued liabilities            |                                                                                                                                             |                       | 6,906        
|                               |                                      |                                                                                                                                             |                       |              
|                               | Total current liabilities            |                                                                                                                                             |                       | 12,995       
|                               |                                      |                                                                                                                                             |                       |              
|                               |                                      |                                                                                                                                             | Deferred Income Taxes |              
|                               |                                      |                                                                                                                                             |                       |              
|                               |                                      | Minority Interest in Consolidated Subsidiaries                                                                                              |                       |              
|                               |                                      |                                                                                                                                             |                       |              
|                               | Contingent Liabilities               |                                                                                                                                             |                       |             
|SHAREHOLDERS' EQUITY           |                                      |                                                                                                                                             |                       |              
|                               | Capital Stock:                       |                                                                                                                                             |                       |              
|                               |                                      | Class A, $1 par value, Authorized7,500,000 shares;
Issued and outstanding
2,088,000 in 2001 and 2,083,000 in 2000                         |                       |              
|                               |                                      | Class B, $1 par value, convertible
to Class A, Authorized3,500,000 shares;
Issued and outstanding
1,665,000 in 2001 and 1,670,000 in 2000 |                       |              
|                               |                                      |                                                                                                                                             |                       | Other Capital
|                               |                                      |                                                                                                                                             | Retained Earnings     |              
|                               |                                      |                                                                                                                                             |                       |              
|                               |                                      |                                                                                                                                             | 44,957                |              
|                               |                                      |                                                                                                                                             |                       |              
|                               |                                      | $                                                                                                                                           | 61,499                |              
|                               |                                      |                                                                                                                                             |                       |              

The accompanying notes are an integral part of the consolidated financial statements.

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CONSOLIDATED STATEMENT OF INCOME        For the Years Ended December 31, 2001, 2000 and 1999        (Amounts in Thousands, Except per Share Data)

|                                                       |                                 | 2001                                                    |         | 2000 |        | 1999    |      
|------------------------------------------------------ | ------------------------------- | ------------------------------------------------------- | ------- | ---- | ------ | ------- | -----
|Net sales                                              |                                 | $                                                       | 112,266 |      | $      | 128,165 |      
|Cost of sales                                          |                                 |                                                         | 95,701  |      |        | 116,386 |      
|                                                       |                                 |                                                         |         |      |        |         |      
|                                                       |                                 | Gross profit                                            |         |      | 16,565 |         |      
|Selling, delivery, general and administrative expenses |                                 |                                                         | 18,976  |      |        | 22,189  |      
|                                                       |                                 |                                                         |         |      |        |         |      
|                                                       |                                 | Operating income (loss)                                 |         |      | (2,411 | )       |      
|Interest and other income                              |                                 |                                                         | 562     |      |        | 813     |      
|Interest expense                                       |                                 |                                                         | (340    | )    |        | (402    | )    
|                                                       |                                 |                                                         |         |      |        |         |      
|                                                       |                                 | Income (loss) before minority interest and income taxes |         |      | (2,189 | )       |      
|Minority interest in consolidated subsidiaries         |                                 |                                                         | (77     | )    |        | 321     |      
|Income tax (expense) benefit                           |                                 |                                                         | 692     |      |        | 3,762   |      
|                                                       |                                 |                                                         |         |      |        |         |      
|                                                       |                                 | Net income (loss)                                       |         | $    | (1,574 | )       | $    
|                                                       |                                 |                                                         |         |      |        |         |      
|Net income (loss) per outstanding common share         |                                 |                                                         |         |      |        |         |      
|                                                       | Class Abasic and fully diluted |                                                         | $       | (.42 | )      | $       | (1.53
|                                                       | Class Bbasic and fully diluted |                                                         | $       | (.42 | )      | $       | (1.53

The accompanying notes are an integral part of the consolidated financial statements.

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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY        For the Years Ended December 31, 2001, 2000 and 1999        (Amounts in Thousands)

|                          |                                                         | Class A
Common
Stock |       | Class B
Common
Stock |   | Other
Capital |     | Retained
Earnings |    | Total |  
|------------------------- | ------------------------------------------------------- | -------------------- | ----- | -------------------- | - | ------------- | --- | ----------------- | -- | ----- | -
|Balance, January 1, 1999  |                                                         | $                    | 2,224 |                      | $ | 1,728         |     | $                 | 83 |       | $
|                          | Conversion from Class B to Class A                      |                      |       | 13                   |   |               | (13 | )                 |    |       |  
|                          | Repurchase and cancellation of Class A & Class B Shares |                      |       | (39                  | ) |               | (9  | )                 |    |       |  
|                          | Net income for the year                                 |                      |       |                      |   |               |     |                   |    |       |  
|                          | Cash dividends$.28 per share                           |                      |       |                      |   |               |     |                   |    |       |  
|                          |                                                         |                      |       |                      |   |               |     |                   |    |       |  
|Balance December 31, 1999 |                                                         |                      | 2,198 |                      |   | 1,706         |     |                   | 83 |       |  
|                          | Repurchase and cancellation of Class A & Class B Shares |                      |       | (115                 | ) |               | (36 | )                 |    |       |  
|                          | Net loss for the year                                   |                      |       |                      |   |               |     |                   |    |       |  
|                          | Cash dividends$.28 per share                           |                      |       |                      |   |               |     |                   |    |       |  
|                          |                                                         |                      |       |                      |   |               |     |                   |    |       |  
|Balance December 31, 2000 |                                                         |                      | 2,083 |                      |   | 1,670         |     |                   | 83 |       |  
|                          | Conversion from Class B to Class A Shares               |                      |       | 5                    |   |               | (5  | )                 |    |       |  
|                          | Net loss for the year                                   |                      |       |                      |   |               |     |                   |    |       |  
|                          | Cash dividends$.28 per share                           |                      |       |                      |   |               |     |                   |    |       |  
|                          |                                                         |                      |       |                      |   |               |     |                   |    |       |  
|Balance December 31, 2001 |                                                         | $                    | 2,088 |                      | $ | 1,665         |     | $                 | 83 |       | $
|                          |                                                         |                      |       |                      |   |               |     |                   |    |       |  

The accompanying notes are an integral part of the consolidated financial statements.

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CONSOLIDATED STATEMENT OF CASH FLOWS        For the Years Ended December 31, 2001, 2000 and 1999        (Amounts in Thousands)

|                                                     |                                                                                          | 2001                                          |                                 | 2000              |        | 1999   |        
|---------------------------------------------------- | ---------------------------------------------------------------------------------------- | --------------------------------------------- | ------------------------------- | ----------------- | ------ | ------ | -------
|Cash flows from (used in) operating activities:      |                                                                                          |                                               |                                 |                   |        |        |        
|                                                     |                                                                                          | Net income (loss)                             |                                 | $                 | (1,574 | )      | $      
|                                                     |                                                                                          |                                               |                                 |                   |        |        |        
|                                                     | Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                               |                                 |                   |        |        |        
|                                                     |                                                                                          | Depreciation                                  |                                 |                   | 2,465  |        |        
|                                                     |                                                                                          | Deferred income taxes                         |                                 |                   | (420   | )      |        
|                                                     |                                                                                          | Minority interest                             |                                 |                   | 77     |        |        
|                                                     |                                                                                          | Net value of retail center assets written off |                                 |                   | 151    |        |        
|                                                     |                                                                                          | Changes in assets and liabilities:            |                                 |                   |        |        |        
|                                                     |                                                                                          |                                               | Receivables                     |                   |        | 753    |        
|                                                     |                                                                                          |                                               | Inventories                     |                   |        | 4,855  |        
|                                                     |                                                                                          |                                               | Prepayments and other           |                   |        | (222   | )      
|                                                     |                                                                                          |                                               | Accounts payable                |                   |        | (1,008 | )      
|                                                     |                                                                                          |                                               | Accrued liabilities             |                   |        | (1,808 | )      
|                                                     |                                                                                          |                                               | Income taxes payable/receivable |                   |        | 3,281  |        
|                                                     |                                                                                          |                                               |                                 |                   |        |        |        
|                                                     |                                                                                          |                                               |                                 | Total adjustments |        |        | 8,124  
|                                                     |                                                                                          |                                               |                                 |                   |        |        |        
|                                                     | Net cash from (used in) operating activities                                             |                                               |                                 | 6,550             |        |        | (12,268
|                                                     |                                                                                          |                                               |                                 |                   |        |        |        
|Cash flows from (used in) investing activities:      |                                                                                          |                                               |                                 |                   |        |        |        
|                                                     | Additions to property, plant & equipment                                                 |                                               |                                 | (396              | )      |        | (2,761 
|                                                     | Disposal of (investment in) short term investments                                       |                                               |                                 | 50                |        |        | 6,185  
|                                                     |                                                                                          |                                               |                                 |                   |        |        |        
|                                                     | Net cash from (used in) investing activities                                             |                                               |                                 | (346              | )      |        | 3,424  
|                                                     |                                                                                          |                                               |                                 |                   |        |        |        
|Cash flows from (used in) financing activities:      |                                                                                          |                                               |                                 |                   |        |        |        
|                                                     | Proceeds from floorplan notes payable                                                    |                                               |                                 | 3,751             |        |        | 7,928  
|                                                     | Repayments of floorplan notes payable                                                    |                                               |                                 | (6,577            | )      |        | (2,719 
|                                                     | Cash dividends paid                                                                      |                                               |                                 | (1,051            | )      |        | (1,067 
|                                                     | Minority interest contributed capital                                                    |                                               |                                 |                  |        |        |       
|                                                     | Retirement of common stock                                                               |                                               |                                 |                  |        |        | (957   
|                                                     |                                                                                          |                                               |                                 |                   |        |        |        
|                                                     | Net cash from (used in) financing activities                                             |                                               |                                 | (3,877            | )      |        | 3,185  
|                                                     |                                                                                          |                                               |                                 |                   |        |        |        
|Net increase (decrease) in cash and cash equivalents |                                                                                          |                                               | 2,327                           |                   |        | (5,659 | )      
|Cash and cash equivalents, beginning of year         |                                                                                          |                                               | 4,896                           |                   |        | 10,555 |        
|                                                     |                                                                                          |                                               |                                 |                   |        |        |        
|Cash and cash equivalents, end of year               |                                                                                          | $                                             | 7,223                           |                   | $      | 4,896  |        
|                                                     |                                                                                          |                                               |                                 |                   |        |        |        
|Supplemental disclosures of cash flow information   |                                                                                          |                                               |                                 |                   |        |        |        
|                                                     | Cash paid (received) for income taxes                                                    |                                               | $                               | (3,403            | )      | $      | (706   
|                                                     | Cash paid for interest expense                                                           |                                               | $                               | 373               |        | $      | 348    

The
accompanying notes are an integral part of the consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES:

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all its wholly owned and its majority owned subsidiaries. Upon consolidation, all
inter-company accounts, transactions and profits have been eliminated.

Cash and Cash Equivalents

Cash and cash equivalents include highly liquid investments which are converted to known amounts of cash on a daily basis. These investments are carried at cost
which approximates market value.

Short-Term Investments

At December 31, 2001 and 2000, short term investments consisted primarily of certificates of deposit with original maturities of 90 days to
12 months and readily convertible to cash. These investments are carried at cost which approximate fair market value. The Company intends to hold the certificates of deposit until maturity. The
Company's investments were maintained in two financial institutions at December 31, 2001.

Inventories

Inventories are stated at the lower of cost or market, with cost determined on a first-in, first-out basis. A recap of inventories is as
follows:

2001

2000(Amounts in Thousands)Raw material inventory

$
5,434

$
5,907Work in process inventory


1,702


2,071Inventory held for resale including homes repurchased under repurchase obligations


5,431


9,444$
12,567

$
17,422


Property, Plant and Equipment

Property, plant and equipment is recorded at cost. Depreciation is taken over the estimated useful life of the asset and is provided principally on the
straight-line method. When assets are retired or disposed, the related cost and accumulated depreciation is removed from the accounts and any resulting gain or loss is included in
operations. Operations are charged with all maintenance, repairs and rearrangement expenses, while betterments and renewals which increase the productive capacity of assets are capitalized and
depreciated.

Property Held for Sale

The Company currently has for sale two of its formerly used production facilities, one in Dorchester, Wisconsin and the other in Tuscumbia, Alabama. Both
facilities ceased operation in 2000. Production from the Dorchester, Wisconsin plant was consolidated into the Company's other Dorchester plant, while the Tuscumbia business was moved 50 miles to the
Hamilton, Alabama plant. These consolidations were done as part of the Company's response to the current industry downturn.

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The
properties were listed for sale in 2001 and each facility includes land, land improvements and buildings. Appraisal values and asking price for each of the properties exceeds the net
book value of each. Accordingly, the statements reflect this aggregate net book value of $2,921,000 and no adjustments for impairment have been made.

Product Warranty Costs

Estimated warranty obligations are provided at the time of sale.

Income Taxes

The Company accounts for income taxes using the asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences of
temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of ending assets and
liabilities. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

Recently Enacted Accounting Standards

Recent accounting standards change the treatment of business combinations, amortization of goodwill and other intangibles and disposals of long-lived
asset groups. The Company does not anticipate any significant effect when these new standards are adopted in 2002.

Earnings Per Share

Basic and diluted earnings per share are computed based on weighted average Class A and Class B shares outstanding. There are no options or warrants
outstanding to create a dilutive effect.

Revenue Recognition

Revenue is recognized when title is transferred upon shipment.

Delivery Revenues and Costs

The Company includes in net sales the amounts billed to its customers for delivery services. The costs of these services are included in the Company's selling,
delivery, general and administrative expenses.

Nature of Business, Risks and Uncertainties

The Company designs, manufactures and sells at wholesale a broad line of single and multi-section manufactured homes to numerous independent dealers in the United
States who utilize floorplan financing arrangements with lending institutions. Continued availability of credit to these dealers is vital to the Company's business. The Company considers itself to be
in the industry segment of manufacturing homes as other operations are immaterial.

The
process of preparing financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions regarding certain assets,
liabilities, revenues and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual amounts may
differ from estimated amounts. The most notable assumptions included in the financial statements involve product warranty costs, potential repurchase obligations on dealer floorplan financing
arrangements and reserves set for the

20

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Company's self-funded group medical benefit plan. The Company maintains excess loss coverage on the medical benefit program through insurance contracts.

2. CAPITAL STOCK:

The shares of Class A Common Stock have no voting rights and are not convertible. The shares of Class B Common Stock have voting rights of one vote
per share and are convertible into Class A Common Stock on a one for one basis. The Class A Shares may carry a preferential dividend rate. However, in no event will the dividend rate be
less than the Class B shares. The weighted average of all shares outstanding in 2001, 2000 and 1999 was 3,753,000 shares, 3,854,000 shares and 3,916,000 shares, respectively. The Board of
Directors has approved a stock repurchase program authorizing the Company to repurchase up to 1,100,000 outstanding shares of its Class A and Class B Common Shares on the open market or
in negotiated transactions at management's discretion. At December 31, 2001, 758,000 shares of Class A Common Stock and 60,000 shares of Class B Common Stock had been repurchased
and canceled under this program.

3. INCOME TAXES:

The deferred taxes in the accompanying balance sheet includes the following amounts of deferred tax assets and liabilities:

2001

2000

1999(Amounts in Thousands)Deferred tax asset

$
2,820

$
2,480

$
2,240Deferred tax (liability)


(2,450
)

(2,530
)

(2,420
)Net deferred tax asset (liability)

$
370

$
(50
)
$
(180
)


The
tax effects of principal temporary differences and carry forwards are as follows:

2001

2000

1999(Amounts in Thousands)Nondeductible accruals & reserves

$
2,663

$
2,279

$
2,166Accelerated tax depreciation


(2,293
)

(2,329
)

(2,346
)$
370

$
(50
)
$
(180
)


The
components of income tax benefit (expense) are as follows:

2001

2000

1999(Amounts in Thousands)Current:Federal

$
240

$
3,533

$
(1,225
)State


32


99


(115
)Deferred:Federal


393


(321
)

(338
)State


27


451


(72
)$
692

$
3,762

$
(1,750
)


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The
income tax benefit (expense) is based on consolidated income (loss) before taxes adjusted for non-taxable income and non-deductible expense. The tax benefit
(expense) reconciles with the statutory United States federal income tax rate in 2001, 2000 and 1999 as follows:

Income Tax Expense2001

2000

1999(Amounts in Thousands)Income taxes at statutory federal rate 34%

$
744

$
3,400

$
(1,502
)State income taxes, net of federal tax effect


39


362


(123
)Other


(91
)




(125
)$
692

$
3,762

$
(1,750
)Effective Tax Rate


32
%

38
%

41
%


4. NOTES PAYABLE:

The Company has agreements through some of its subsidiaries for certain inventory financing for a total loan commitment of $9,500,000 under master loan
agreements. The agreements are secured by virtually all of the assets of the subsidiary companies and the guarantee of the parent company and bear interest at 1/2% over prime at
December 31, 2001. Payment is due when the related home is sold. The loan agreements contain covenants restricting the subsidiaries from certain transfers of assets and business mergers and
consolidation. Total interest expense related to these obligations was $340,000 for 2001 and $402,000 for 2000. The balance outstanding at December 31, 2001 was $2,383,000 and $5,209,000 at
December 31, 2000.

The
Company has also entered into a $5,000,000 unsecured revolving line of credit with 1st Source Bank with interest payable monthly at the rate of .25% to .50% below the prime rate
depending on the Company's leverage ratio. The line is subject to renewal on June 30, 2002 and contains covenant provisions related to financial ratios and certain other matters, with which the
Company was in compliance at December 31, 2001. There was no balance outstanding at December 31, 2001.

5. OTHER ACCRUED LIABILITIES:

Other accrued liabilities at December 31, 2001 and 2000 are as follows:

2001

2000(Amounts in Thousands)Marketing Programs

$
2,734

$
3,419Product Warranty


1,764


1,764Dividends


263


263Other


2,145


2,907$
6,906

$
8,353


6. CONTINGENT LIABILITIES:

Repurchase Obligations

The Company is contingently liable as of December 31, 2001 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

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under such agreements is reduced by the resale of the repurchased home. The Company has, as of December 31, 2001, provided for losses on homes for which it has received or expects notification
of repurchase.

Other Contingencies

The Company is party to various legal proceedings from the normal course of operations. The Company has provided for anticipated losses resulting from the
litigation. In management's opinion, the Company has adequate legal defenses and does not believe these suits will materially affect the Company's operations or financial position.

7. RETIREMENT PLAN:

The Company has a 401(k) retirement plan which covers substantially all employees. The Company has agreed to match a portion of the employee contributions made to
the plan. The expense for this plan for the year ended December 31, 2001, 2000 and 1999 was $147,000, $187,000 and $210,000, respectively.

8. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):

The Company's results of operations in 2001 and 2000 by quarter are as follows:

|                                    |                         | Quarter Ended |        |      |  
|----------------------------------- | ----------------------- | ------------- | ------ | ---- | -
|
|
|
|2001:                               |                         |               |        |      |  
|Net sales                           |                         | $             | 24,761 |      | $
|Gross profit                        |                         |               | 3,088  |      |  
|Net income (loss)                   |                         |               | (1,114 | )    |  
|Net income (loss) per Class A Share |                         |               |        |      |  
|                                    | Basic and Fully Diluted |               |        | (.30 | )
|Net income (loss) per Class B Share |                         |               |        |      |  
|                                    | Basic and Fully Diluted |               |        | (.30 | )
|2000:                               |                         |               |        |      |  
|Net sales                           |                         | $             | 37,473 |      | $
|Gross profit                        |                         |               | 4,321  |      |  
|Net income                          |                         |               | (643   | )    |  
|Net Income per Class A Share        |                         |               |        |      |  
|                                    | Basic and Fully Diluted |               |        | (.16 | )
|Net Income per Class B Share        |                         |               |        |      |  
|                                    | Basic and Fully Diluted |               |        | (.16 | )

23

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REPORT OF INDEPENDENT AUDITORS

Board
of Directors and Shareholders
Liberty Homes, Inc.
Goshen, Indiana

We
have audited the accompanying consolidated balance sheets of Liberty Homes, Inc. and Subsidiaries as of December 31, 2001 and 2000 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Liberty Homes, Inc. and Subsidiaries as
of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America.

| |  | Crowe, Chizek and Company LLP
| |  | -----------------------------
| |  |                              

Elkhart,
Indiana
February 15, 2002

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BOARD OF DIRECTORS

|NAME                 |  | PRINCIPAL OCCUPATION AND EMPLOYER                                                     
|-------------------- |  | --------------------------------------------------------------------------------------
|Edward J. Hussey     |  | Chairman of the Board and President of Liberty Homes, Inc.                            
|Edward Joseph Hussey |  | Vice President, Secretary and Assistant Treasurer of Liberty Homes, Inc.              
|Michael F. Hussey    |  | Vice PresidentFinance and Assistant Secretary of Liberty Homes, Inc.                 
|David M. Huffine     |  | National Sales Manager of United General Mortgage Corporation, Bethlehem, Pennsylvania
|Mitchell Day         |  | President of Day Equipment Corporation, Goshen, Indiana                               
|Lester M. Molnar     |  | Retired, Former Vice President of Liberty Homes, Inc.                                 

OFFICERS



REGISTRAR & TRANSFER AGENT



AUDITORS



LEGAL COUNSEL



ANNUAL REPORT ON FORM 10-K

The Liberty Homes, Inc. Annual Report on Form 10-K filed with the Securities and Exchange Commission is available to shareholders at no
charge upon written request to Liberty Homes, Inc., PO Box 35, Goshen, Indiana 46527, attention Marc A. Dosmann.

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