**FORM 10-Q**

 

**SECURITIES AND EXCHANGE COMMISSION**

 

**Washington DC 20549**

 

**(MarkOne)**

| **ý**                                                                                                                                                                                 |   | **Quarterly  Report Pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934**  |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                       |   |                                                                                           |
| **For the quarterly period ended March 31,  2004.**                                                                                                                                        |
|                                                                                                                                                                                       |   |                                                                                           |
| **- or -**                                                                                                                                                                                 |
|                                                                                                                                                                                       |   |                                                                                           |
| **o**                                                                                                                                                                                      |   | **Transition  Report Pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934** |
|                                                                                                                                                                                       |   |                                                                                           |
| **For the Transition Period From               to              .** |

 

**Commission FileNumber 0-5555**

 

**LIBERTY HOMES, INC.**(Exact name of registrant as specified in its charter)

 

| **Indiana**                                                               |   | **35-1174256**                    |
|---------------------------------------------------------------------------|--------|-----------------------------------|
| (State of Incorporation)                                                  |   | (IRS Employer Identification No.) |
|                                                                      |   |                              |
| **PO Box 35, Goshen, Indiana**                                            |   | **46527**                         |
| (Address of principal executive offices)                                  |   | (ZIP Code)                        |
|                                                                      |   |                              |
| **574.533.0431**(Registrant’s telephone number, including area code) |

 

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.              Yes  ý   No  o

 

Indicate by check mark whetherthe Registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).  Yes o   No ý

 

Indicate the number of sharesoutstanding of each of the registrant’s classes of common stock, as of thelatest practicable date.

 
| **Class**                              |   | **Shares of Outstanding  at May 7, 2004** |
|----------------------------------------|--------|-------------------------------------------|
|                                   |   |                                      |
| Class A  Common Stock, $1.00 par value |   | 2,002,045                                 |
|                                   |   |                                      |
| Class B  Common Stock, $1.00 par value |   | 1,652,422                                 |

 

 

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**INDEX**

 
| Part I - Consolidated Financial Information |                                                                                                  |
|---------------------------------------------|-------------------------------------------------------------------------------------------------------|
|                                        |                                                                                                  |   |
| General                                     |                                                                                                  |   |
| Item 1.                                     | Consolidated Financial Statements                                                                     |   |
|                                        |                                                                                                  |   |
|                                        | Consolidated Balance Sheet, as of  March 31, 2004 (Unaudited) and December 31, 2003                   |   |
|                                        |                                                                                                  |   |
|                                        | Consolidated Statement of Income  (Unaudited), for the  three months ended March 31, 2004 and 2003    |   |
|                                        |                                                                                                  |   |
|                                        | Consolidated Statement of Cash Flows  (Unaudited) for the  three months ended March 31, 2004 and 2003 |   |
|                                        |                                                                                                  |   |
|                                        | Notes to Consolidated Financial Statements  (Unaudited)                                               |   |
|                                        |                                                                                                  |   |
| Item 2.                                     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations           |   |
|                                        |                                                                                                  |   |
| Item 3.                                     | Quantitative  and Qualitative Disclosures About Market Risk                                           |   |
|                                        |                                                                                                  |   |
| Item 4.                                     | Management’s  Report on Disclosure Controls and Procedures and Internal Control                  |   |
|                                        |                                                                                                  |   |
| Part II – Other Information            |                                                                                                  |
|                                        |                                                                                                  |
| Item 6.                                     | Exhibits and Reports on Form 8-K                                                                      |   |
|                                        |                                                                                                  |   |
|                                        | Signature and Certifications                                                                          |   |

 

2

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Part 1.     CONSOLIDATED FINANCIALINFORMATION

Item 1.    Consolidated Financial Statements

 

**LIBERTYHOMES, INC.**CONSOLIDATED BALANCESHEETas of March 31, 2004 and December 31, 2003

 
|                                                                                           |   | **(Unaudited)  March 31,  2004** |       | **December  31,  2003** |   |
|------------------------------------------------------------------------------------------------|--------|----------------------------------|------------|-------------------------|--------|
| **ASSETS**                                                                                     |   |                             |       |                    |   |
| Current assets:                                                                                |   |                             |       |                    |   |
| Cash and cash equivalents                                                                      |   | $                                | 3,146,000  |                    | $      | 6,080,000 |   |
| Short term investments                                                                         |   | 50,000                           |       | 50,000                  |   |
| Receivables                                                                                    |   | 8,334,000                        |       | 3,867,000               |   |
| Inventories                                                                                    |   | 10,910,000                       |       | 9,594,000               |   |
| Deferred tax asset                                                                             |   | 3,490,000                        |       | 3,490,000               |   |
| Income taxes refundable                                                                        |   | 72,000                           |       | 81,000                  |   |
| Prepayments and other                                                                          |   | 952,000                          |       | 1,029,000               |   |
|                                                                                           |   |                             |       |                    |   |
| Total current assets                                                                           |   | 26,954,000                       |       | 24,191,000              |   |
|                                                                                           |   |                             |       |                    |   |
| Property, plant and equipment:                                                                 |   |                             |       |                    |   |
|                                                                                           |   |                             |       |                    |   |
| Land                                                                                           |   | 1,519,000                        |       | 1,519,000               |   |
| Buildings and improvements                                                                     |   | 23,803,000                       |       | 23,803,000              |   |
| Machinery and equipment                                                                        |   | 20,412,000                       |       | 20,151,000              |   |
|                                                                                           |   |                             |       |                    |   |
|                                                                                           |   | 45,734,000                       |       | 45,473,000              |   |
|                                                                                           |   |                             |       |                    |   |
| Less accumulated depreciation                                                                  |   | 27,977,000                       |       | 27,574,000              |   |
|                                                                                           |   |                             |       |                    |   |
|                                                                                           |   | 17,757,000                       |       | 17,899,000              |   |
|                                                                                           |   |                             |       |                    |   |
| Property held for sale                                                                         |   | 5,203,000                        |       | 5,180,000               |   |
|                                                                                           |   |                             |       |                    |   |
| Total assets                                                                                   |   | $                                | 49,914,000 |                    | $      | 47,270,000 |   |
|                                                                                           |   |                             |       |                    |   |
| **LIABILITIES**                                                                                |   |                             |       |                    |   |
| Current liabilities:                                                                           |   |                             |       |                    |   |
| Accounts payable                                                                               |   | $                                | 3,202,000  |                    | $      | 1,668,000 |   |
| Notes payable                                                                                  |   | 3,765,000                        |       | 573,000                 |   |
| Accrued compensation & payroll taxes                                                       |   | 1,646,000                        |       | 862,000                 |   |
| Other accrued liabilities                                                                      |   | 6,007,000                        |       | 7,031,000               |   |
|                                                                                           |   |                             |       |                    |   |
| Total current liabilities                                                                      |   | 14,620,000                       |       | 10,134,000              |   |
| Deferred income taxes                                                                          |   | 2,781,000                        |       | 2,781,000               |   |
| Minority interest in consolidated  subsidiaries                                                |   | 857,000                          |       | 926,000                 |   |
| Contingent liabilities (see notes)                                                             |   | —                           |       | —                  |   |
|                                                                                           |   |                             |       |                    |   |
| **SHAREHOLDERS’ EQUITY**                                                                  |   |                             |       |                    |   |
| Capital Stock:                                                                                 |   |                             |       |                    |   |
| Class A, $1 par value                                                                          |   |                             |       |                    |   |
|   Authorized-7,500,000 Shares  Issued & outstanding-2,002,000 in 2004 & 2003 |   | 2,002,000                        |       | 2,002,000               |   |
| Class B, $1 par value                                                                          |   |                             |       |                    |   |
|   Authorized-3,500,000 Shares  Issued & outstanding-1,652,000 in 2004 & 2003 |   | 1,652,000                        |       | 1,652,000               |   |
|                                                                                           |   |                             |       |                    |   |
| Other capital                                                                                  |   | 83,000                           |       | 83,000                  |   |
|                                                                                           |   |                             |       |                    |   |
| Retained earnings                                                                              |   | 27,919,000                       |       | 29,692,000              |   |
|                                                                                           |   |                             |       |                    |   |
|                                                                                           |   | 31,656,000                       |       | 33,429,000              |   |
|                                                                                           |   |                             |       |                    |   |
| Total  liabilities and stockholders’ equity                                               |   | $                                | 49,914,000 |                    | $      | 47,270,000 |   |

 

Theaccompanying notes are a part of the consolidated financial statements.

 

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LIBERTY HOMES, INC.

 

CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)

 

for the three months ended March 31, 2004 and 2003

 
|                                                                  |   | **2004**   |       | **2003**   |   |
|-----------------------------------------------------------------------|--------|------------|------------|------------|--------|
|                                                                  |   |       |       |       |   |
| Net sales                                                             |   | $          | 19,946,000 |       | $      | 17,154,000 |   |
|                                                                  |   |       |       |       |   |
| Cost of sales                                                         |   | 17,920,000 |       | 15,557,000 |   |
|                                                                  |   |       |       |       |   |
| Gross profit                                                          |   | 2,026,000  |       | 1,597,000  |   |
|                                                                  |   |       |       |       |   |
| Selling,  delivery, general and administrative Expenses               |   | 3,590,000  |       | 3,599,000  |   |
|                                                                  |   |       |       |       |   |
| Operating loss                                                        |   | (1,564,000 | )          | (2,002,000 | )      |
|                                                                  |   |       |       |       |   |
| Interest expense                                                      |   | (18,000    | )          | (27,000    | )      |
|                                                                  |   |       |       |       |   |
| Interest and other income (loss)                                      |   | (6,000     | )          | 15,000     |   |
|                                                                  |   |       |       |       |   |
| Loss before minority interest and income  taxes                       |   | (1,588,000 | )          | (2,014,000 | )      |
|                                                                  |   |       |       |       |   |
| Minority interest                                                     |   | 69,000     |       | 29,000     |   |
|                                                                  |   |       |       |       |   |
| Income tax benefit                                                    |   | —     |       | —     |   |
|                                                                  |   |       |       |       |   |
| Net loss                                                              |   | $          | (1,519,000 | )          | $      | (1,985,000 | ) |
|                                                                  |   |       |       |       |   |
| Net loss per outstanding Common Share –  basic and fully diluted |   | $          | (.42       | )          | $      | (.54 | ) |
|                                                                  |   |       |       |       |   |
| Weighted average shares outstanding                                   |   | 3,654,000  |       | 3,654,000  |   |
|                                                                  |   |       |       |       |   |
| Cash  dividend per share:                                             |   |       |       |       |   |
|                                                                  |   |       |       |       |   |
| Class A and Class B Common Stock                                      |   | $          | .07        |       | $      | .07 |   |

 

The accompanying notes are apart of the consolidated financial statements.

 

4

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LIBERTY HOMES, INC.

 

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

 

for the three months ended March 31, 2004 and 2003

 
|                                                                       |   | **2004**   |       | **2003**   |   |
|----------------------------------------------------------------------------|--------|------------|------------|------------|--------|
| Cash flows used in operating activities                                    |   |       |       |       |   |
| Net loss                                                                   |   | $          | (1,519,000 | )          | $      | (1,985,000 | ) |
| Adjustment to reconcile net loss to net  cash used in operating activities |   |       |       |       |   |
| Depreciation                                                               |   | 439,000    |       | 492,000    |   |
| Minority interest                                                          |   | (69,000    | )          | (29,000    | )      |
|                                                                       |   |       |       |       |   |
| Changes in assets and liabilities:                                         |   |       |       |       |   |
| Receivables                                                                |   | (4,467,000 | )          | (1,763,000 | )      |
| Inventories                                                                |   | (1,316,000 | )          | (1,160,000 | )      |
| Prepayments and other                                                      |   | 77,000     |       | (925,000   | )      |
| Accounts payable                                                           |   | 1,534,000  |       | 1,716,000  |   |
| Other current liabilities                                                  |   | (240,000   | )          | (1,168,000 | )      |
| Income taxes receivable                                                    |   | 9,000      |       | 1,676,000  |   |
| Total adjustments                                                          |   | (4,033,000 | )          | (1,161,000 | )      |
| Net cash used in operating activities                                      |   | (5,552,000 | )          | (3,146,000 | )      |
|                                                                       |   |       |       |       |   |
| Cash flows used in investing activities                                    |   |       |       |       |   |
| Additions to property, plant and equipment                                 |   | (320,000   | )          | (127,000   | )      |
|                                                                       |   |       |       |       |   |
| Net cash used in investing activities                                      |   | (320,000   | )          | (127,000   | )      |
|                                                                       |   |       |       |       |   |
| Cash flows provided by (used in) financing  activities                     |   |       |       |       |   |
| Cash dividends paid                                                        |   | (254,000   | )          | (256,000   | )      |
| Proceeds from notes payable                                                |   | 3,280,000  |       | 3,107,000  |   |
| Payments of notes payable                                                  |   | (88,000    | )          | (2,357,000 | )      |
|                                                                       |   |       |       |       |   |
| Net cash provided by financing activities                                  |   | 2,938,000  |       | 494,000    |   |
|                                                                       |   |       |       |       |   |
| Net decrease in cash and cash equivalents                                  |   | (2,934,000 | )          | (2,779,000 | )      |
|                                                                       |   |       |       |       |   |
| Cash and cash equivalents at beginning of  period                          |   | 6,080,000  |       | 4,308,000  |   |
|                                                                       |   |       |       |       |   |
| Cash and cash equivalents at end of period                                 |   | $          | 3,146,000  |       | $      | 1,529,000 |   |
|                                                                       |   |       |       |       |   |
| Supplemental disclosures of cash flow  information                         |   |       |       |       |   |
| Cash paid during the period for income  taxes                              |   | $          | 19,000     |       | — |   |
| Cash paid for interest expense                                             |   | 18,000     |       | $          | 27,000 |   |

 

The accompanying notes are apart of the consolidated financial statements.

 

5

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**NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS****(UNAUDITED)**

 

GENERAL:

The consolidated financial statementsand footnotes thereto have been prepared using accounting principles generallyaccepted in the United States of America. Such principles have been applied on a basis consistent with 2003.  The results of operations for the interimperiod presented are not necessarily indicative of results to be expected forthe year.  The information furnishedherein reflects all adjustments (consisting of normal recurring adjustments)which, in the opinion of management, are necessary for a fair presentation of theresults for the interim periods. Certain reclassifications have been done to the previously filedstatement of consolidated income for the first quarter of 2003 in order to beconsistent with the presentation of the first quarter of 2004.

 

PRINCIPLES OF CONSOLIDATION:

The consolidated financialstatements include the accounts of the Company and all its wholly owned andmajority owned subsidiaries.  Uponconsolidation, all inter-Company accounts, transactions and profits have beeneliminated.

 

SHORT TERM INVESTMENTS:

Short-term investments consistprimarily of certificates of deposits with original maturities greater than 90days.

 

INVENTORIES:

Inventories are stated at thelower of cost or market, with cost determined on a first-in, first-outbasis.  Inventories at March 31, 2004consist of:

 

| Raw Material     |   | $         | 5,953,000  |   |
|------------------|--------|-----------|------------|--------|
| Work in Progress |   | 1,586,000 |       |
| Finished goods   |   | 3,371,000 |       |
|             |   | $         | 10,910,000 |   |

 

PROPERTY HELD FOR SALE:

The Company currently has forsale three of its former production facilities, one each in Ocala, Florida,Dorchester, Wisconsin and Tuscumbia, Alabama and also has for sale a closedretail center in Ocala, Florida.  TheWisconsin and Alabama facilities ceased operation in 2000.  Production from the Dorchester, Wisconsinplant was consolidated into the Company’s other Dorchester plant, while theTuscumbia business was moved 50 miles to the Hamilton, Alabama plant.  At the end of 2002, production ceased at theFlorida plant.  The Company finished theplant closure in 2003 and serves this market area from its otherfacilities.  These closings were done aspart of the Company’s response to the current industry downturn.  The retail center was established in orderto liquidate homes that the Company was required to purchase from some of itsfailed retailers.  This center wasclosed in 2003 after all inventory was disposed.

 

All facilities are for sale andinclude land, buildings and land improvements. The appraised values and asking price for each property exceeds the netbook value of each.  All threemanufacturing facilities can fit a wide variety of utilization and the retaillocation is suitable for many purposes. The Company anticipates selling all of these properties for amounts thatexceed their net book value plus disposal costs.  Accordingly, the statements reflect the aggregate net book valueof $5,203,000 for all these properties and no adjustments for impairment havebeen made.

 

6

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NOTES PAYABLE:

At March 31, 2004, the Companyhad the following notes payable:

 
| Revolving credit line of $1,200,000 secured  by subsidiaries’ retail inventory bearing interest at 1/2% over prime rate |   | $         | 765,000   |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|-----------|-----------|--------|
|                                                                                                                         |   |      |      |
| Revolving credit line of $5,000,000 secured  by certain real property bearing interest at 1/2% under prime                   |   | 3,000,000 |      |
|                                                                                                                         |   | $         | 3,765,000 |   |

 

CONTINGENT LIABILITIES:

Repurchase Obligations

The Company is contingentlyliable under terms of repurchase agreements with various financialinstitutions, which provide for the repurchase of its homes sold to retailersunder floor plan financing arrangements upon retailer default.  The risk of loss under these agreements isspread over many retailers and is further reduced by the resale value of thehomes.  The Company has, as of March 31,2004, provided for losses on homes for which it has received or expectsnotification of repurchase.  Anysignificant change could place unplanned demands on the Company.

 

Other Contingencies

The Company is party to variouslegal proceedings from the normal course of operations. The Company hasprovided for anticipated losses resulting from the litigation.  In management’s opinion, the Company hasadequate legal defenses and does not believe these suits will materially affectthe Company’s operations or financial position.

 

EARNINGS PER SHARE

Basic and diluted earnings pershare are computed based on weighted average Class A and Class B sharesoutstanding.  There are no options orwarrants outstanding to create a dilutive effect.

 

REVENUE RECOGNITION

Revenue is recognized when titleis transferred upon shipment.

 

NATURE OF BUSINESS, RISKS ANDUNCERTAINTIES

The Company designs,manufactures and sells at wholesale a broad line of single and multi-sectionmanufactured homes and multi-section modular homes to numerous independentretailers in the United States.  TheCompany considers itself to be in the industry segment of manufacturingresidential homes as other operations are immaterial.

 

There are many risks anduncertainties in the industry segment, general nature of business and the worldsocioeconomic climate that affect the Company. The list included herein is not to be considered complete, however,included among them are the following.

 

•              changes in theavailability of retail (consumer) and wholesale (retailer) financing and thevolatility of the interest rates thereon

•              thestability of the retailer network

•              thelevel of inventory of new and repossessed homes

•              inventoryrepurchase contingencies

•              theavailability and retention of a competent workforce

•              availabilityand price of raw materials

•              unanticipatedresults in pending legal proceedings

 

7

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•              regulatoryconstraints

•              worldand economic events that affect consumer confidence

 

Further insight into some ofthese items can be found in the Management’s Discussion and Analysis ofFinancial Condition and Results of Operations section of this report.

 

USE OF ESTIMATES

The process of preparingfinancial statements in conformity with accounting principles generallyaccepted in the United States requires the use of estimates and assumptionsregarding certain assets, liabilities, revenues and expenses.  Such estimates primarily relate to unsettledtransactions and events as of the date of the financial statements.  Accordingly, upon settlement, actual amountsmay differ from estimated amounts.  Themost notable assumptions included in the financial statements involve productwarranty costs, potential repurchase obligations on retailer floorplan financingarrangements, lawsuits, deferred taxes and property held for sale.

 

Item 2.  Management’s Discussion and Analysis of Financial Condition andResults of Operations. 

 

RESULTS OF OPERATIONS

Our Company continues to face adifficult climate in the manufactured home and modular housing industry.  Particularly noteworthy have been rapidincreases in raw material costs.  Theseincreased costs have forced us to raise sales prices.  However, sales backlogs have inhibited our ability to completelyoffset material cost increases with a rise in sales price.  Still, even with the pressure of increases,our 2004 first quarter unit shipments were slightly ahead of the same quarterof 2003.

 

In a gauge of the mostcurrently available statistics, the Manufactured Housing Institute reports a 5%unit volume decline of manufactured homes during the first three months of 2004over the same period in 2003.  For thequarter, our Company shipped 3% more modular and manufactured homes in 2004than during 2003.  Net sales for thefirst quarter of 2004 were $19,946,000, an increase of $2,792,000 or 16% fromthe same quarter of 2003.  The averageprice per home sold during the first quarter of 2004 increased over the samequarter of 2003.  This increase resultedlargely from our need to recover material cost increases.  However, some increase has arisen from theCompany’s product mix shifting to higher valued homes with more space andfeatures.

 

Gross profit as a percent ofnet sales increased to 10% from 9% in the year earlier period for a totalincrease of $429,000.  Selling,delivery, general and administrative expenses for the 2004 quarter declined$9,000 from the first quarter of 2003. Increased gross profit combined with a fixed level of selling, delivery,general and administrative costs allowed the Company to reduce its net loss to$1,519,000 during the first quarter of 2004. This improvement is a $466,000 reduction of the $1,985,000 net loss inthe first quarter of 2003.

 

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and capital resourcesdropped from the Company’s position at December 31, 2003.  Cash, cash equivalents and short terminvestments as of March 31, 2004 and December 31, 2003 were $3,196,000 and$6,130,000, respectively.  Workingcapital as of March 31, 2004 and December 31, 2003 was $12,334,000 and $14,057,000,respectively.  The Company’s currentratio was 1.8 to 1 and 2.4 to 1 at March 31, 2004 and December 31, 2003,respectively.

 

The Company currently has a$5,000,000 operating line of credit on which it had a borrowed balance of$3,000,000 at March 31, 2004.  Thiscredit arrangement is due for renewal on June 30, 2004.

 

8

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Additionally, held for sale arethree production facilities and a retail center which have been closed as partof the Company’s cost reduction program. These properties have an aggregate net book value of $5,203,000 and webelieve they can be sold for an aggregate amount in excess of this value.

 

We believe that cash flow fromoperations, cash reserves and the renewal of credit arrangements currently inplace will be sufficient to meet the Company’s requirements in the year2004.  We have taken into considerationthe current conditions in which the Company operates.  Any additional downturn in the industry could affect the Companyand cause us to seek additional lines of credit.

 

OUTLOOK AND RISK FACTORS

The dynamics that propelled themanufacturing component of the industry into its current condition willcontinue to affect near term performance. These factors will adversely affect new home orders resulting in lowersales.

 

The Company’s operations runparallel to the forces in the industry and are impacted by the same riskfactors affecting the industry.  Sincethe Company produces only to retailers’ orders and sales backlogs are traditionallyshort, our order activity is indicative of the day to day retail sales activityof our products.  Any changes affectingretail customer demand, such as cost, unemployment and the factors previouslymentioned, may have an immediate effect on operations.

 

Increased underwritingstandards and a reduced number of retail lenders are factors which will affectthe industry for the foreseeable future. This constriction of credit will keep many potential homebuyers out of themarketplace for manufactured housing. Previously, less restrictive underwriting standards created a highdefault rate on loans resulting in numerous repossessions. Given the excessesthat preceded the current conditions, the long-term health of the industry willbe enhanced by the prudent underwriting of consumer loans.

 

It is a common practice formanufactured housing producers to participate in retailer financing programswhich require the manufacturer to repurchase homes which remain unsold and inretailer inventory within a certain time period following delivery to theretailer, if the retailer defaults on its financing obligations.  When initiated, this repurchase obligationbrings homes back into the wholesale market and may result in some discountingas the units are resold.  Suchdiscounting creates pricing pressure on the sale of new homes.  Furthermore, if it were to occur,considerable future repurchase demands on our retailers would require uses ofthe Company’s resources in this unproductive area.

 

The distribution system for ourCompany’s modular homes may be somewhat different.  While the Company sells some of its modular homes to traditionalmanufactured home retailers, a large percentage of modular homes are sold tobuilder developers who do not typically stock numerous homes for display.  Consequently, homes sold to such builderdevelopers are not subject to repurchase as described above.  As the modular portion of the Company’sbusiness grows, the Company’s contingent liability for repurchase of homesshould proportionately shrink.

 

The spate of retailer failuresthat occurred industry-wide in 2000 slowed during the last three years.However, it is difficult to project what may happen with the existing retailerbase in the future.  A reoccurrence of afallout among this part of the distribution chain may disrupt the market.

 

CRITICAL ACCOUNTING POLICIES

The Company’s Annual Report onForm 10-K for the period ended December 31, 2003, under the heading “CriticalAccounting Policies and Estimates,” provides a list of accounting policies thatare

 

9

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integral components to theportrayal of financial condition and results of operations of the Company.These items are warranty, repurchase obligations, lawsuits, deferred taxes andproperty held for sale.  Since thatreport, we have not changed the use of estimates and judgements in theapplication of Generally Accepted Accounting Policies used in the UnitedStates.

 

FORWARD LOOKING STATEMENTS

The discussion above containsforward looking statements within the meaning of the Private SecuritiesLitigation Reform Act of 1995.  Thesestatements include statements we make regarding industry and company outlooksand risk factors.  We may make otherforward looking statements orally or in writing from time to time.  All such forward looking statements are notguaranties of future events or performance and involve risks anduncertainties.  Actual results may differmaterially from those in our forward looking statements as the result of a numberof material factors.  These factorsinclude without limitation:

 

•              changes in theavailability of retail (consumer) and wholesale (retailer) financing and thevolatility of the interest rates thereon

•              the stability of theretailer network

•              the level ofinventory of new and repossessed homes

•              inventory repurchasecontingencies

•              the availability andretention of a competent workforce

•              availability andprice of raw materials

•              unanticipatedresults in pending legal proceedings

•              regulatory constraints

•              world and economicevents that affect consumer confidence

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk 

 

We usually have a small amountof borrowing on our retail centers’ floorplan line of credit, and have madeinfrequent use of our general line of credit. To the limited extent that we do borrow, we are exposed to changes ininterest rates.  We do not use interestrate derivative instruments to manage exposure to interest rate changes.  Additionally, we do not invest in securitiesor funds or any other type of intangible trading security that is exposed tomarket risk.  We do not enter into anycontractual obligations whose final settlement can be affected by interest ratevolatility, foreign currency rate fluctuations or commodity price changes.

 

Item 4.  Management’s Report on Disclosure Controls and Procedures andInternal Control. 

 

(a)           The Chief ExecutiveOfficer and the Chief Financial Officer of the Company have evaluated theeffectiveness of the design and operation of the Company’s system of disclosurecontrols and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under theExchange Act) as of a date within 90 days prior to the filing of this Form10-Q.  As a result of that evaluation,they have concluded that the Company’s disclosure controls and procedures areeffective to ensure that information required to be disclosed in the Company’sreports filed or submitted under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in Securities andExchange Commission rules and forms.

 

(b)           There have been nosignificant changes in the Company’s system of internal controls or in otherfactors that could significantly affect internal controls subsequent to thedate of their evaluation.  There were nodiscoveries of any significant deficiencies or material weaknesses in suchcontrols that would require the Company to take corrective actions.

 

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PART II –OTHER INFORMATION

 

Item 6.  Exhibits and Reports on Form 8-K

 

Exhibit 31.1 – Certification ofCEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2 – Certification ofCFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1 – Certification ofCEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

No reports on Form 8-K forJanuary, February or March, 2004 have been filed.

 

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**SIGNATURE**

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|   | LIBERTY HOMES, INC.                                                                                      |   |
|--------|----------------------------------------------------------------------------------------------------------|--------|
|   | Registrant                                                                                               |   |
|   |                                                                                                     |   |
|   |                                                                                                     |   |
|   |  BY:  /s/ Marc A. Dosmann                                                                      |   |
|   | Marc A. Dosmann                                                                                          |   |
|   |  Vice  President – Chief Financial Officer   (Principal Financial and Accounting Officer) |   |
|   |                                                                                                     |   |
|   |                                                                                                     |   |
| Dated  | May 14, 2004                                                                                             |   |   |   |
|        |                                                                                                          |        |  |  |

 

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