** **

**FORM 10-Q**

 

**SECURITIES AND EXCHANGE COMMISSION**

 

**Washington DC 20549**

 

**(Mark One)**

ý**                                         QuarterlyReport Pursuant to Section 13 or**

**15(d) of the Securities Exchange Act of 1934**

**For the quarterly period ended June 30, 2002.**

 

**- or -**

 

o**                                        TransitionReport Pursuant to Section 13 or**

**15(d) of the Securities Exchange Act of 1934**

**For the Transition Period From         to        .**

 

 

**Commission File Number 0-5555**

**LIBERTY HOMES, INC.**

(Exact name of registrantas 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 markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days                                                                           Yes ý No o

 

Indicate the number of shares outstanding of each of the registrant’sclasses of common stock, as of the latest practicable date.

 

| **Class**                              |   | **Shares of Outstanding at August 3, 2002** |
|----------------------------------------|--------|---------------------------------------------|
|                                   |   |                                        |
| Class A Common Stock,  $1.00 par value |   | 2,085,645                                   |
|                                   |   |                                        |
| Class B Common Stock,  $1.00 par value |   | 1,659,422                                   |

 

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###### **INDEX**

 
| Part I -  Consolidated Financial Information (Unaudited) |
|----------------------------------------------------------|
|                                                     |   |
|                                                     |   |
| General                                                  |   |
| Item  1.                                                 | Consolidated  Financial Statements - Liberty Homes, Inc. |
|                                                     |   |
|                                                     | Consolidated Balance Sheet,  as of June 30, 2002 and December 31, 2001 |
|                                                     |   |
|                                                     | Consolidated Statement  of Income, for the three months ended June 30, 2002 and 2001 |
|                                                     |   |
|                                                     | Consolidated Statement  of Income, for the six months ended June 30, 2002 and 2001 |
|                                                     |   |
|                                                     | Consolidated Statement  of Cash Flows for the six months ended June 30, 2002 and 2001 |
|                                                     |   |
|                                                     | Notes to  Consolidated Financial Statements |
|                                                     |   |
| Item 2.                                                  | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
|                                                     |   |
|                                                     |   |
| Part II - Other Information                              |
|                                                     |   |
| Item 6.                                                  | Exhibits and Reports on  Form 8-K |
|                                                     |   |
|                                                     | Signature |

 

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###### **PART I -CONSOLIDATED FINANCIAL INFORMATION**

 

General

The consolidatedfinancial statements and footnotes thereto listed in the Index on page 2 ofthis report have been prepared using generally accepted accounting principlesapplied on a basis consistent with 2001. The results of operations for the interim period presented are notnecessarily indicative of results to be expected for the year.  The information furnished herein reflectsall adjustments (consisting of normal recurring adjustments) which, in the opinionof management, are necessary for a fair presentation of the results for theinterim periods.

 

1

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**LIBERTY HOMES, INC.**

CONSOLIDATED BALANCE SHEET

as of June 30, 2002 andDecember 31, 2001

 
| **ASSETS**                                                          |   | **June 30,  2002** |       | **December  31, 2001** |   |
|---------------------------------------------------------------------|--------|--------------------|------------|------------------------|--------|
| Current assets:                                                     |   |               |       |                   |   |
| Cash and cash  equivalents                                          |   | $                  | 4,298,000  |                   | $      | 7,223,000 |   |
| Short term  investments                                             |   | 300,000            |       | 300,000                |   |
| Receivables                                                         |   | 10,780,000         |       | 10,506,000             |   |
| Inventories                                                         |   | 12,319,000         |       | 12,567,000             |   |
| Deferred tax  asset                                                 |   | 2,338,000          |       | 2,820,000              |   |
| Income taxes  refundable                                            |   | 894,000            |       | 362,000                |   |
| Prepayments and  other                                              |   | 2,116,000          |       | 2,248,000              |   |
|                                                                |   |               |       |                   |   |
| Total current  assets                                               |   | 33,045,000         |       | 36,026,000             |   |
|                                                                |   |               |       |                   |   |
| Property, plant  and equipment:                                     |   |               |       |                   |   |
|                                                                |   |               |       |                   |   |
| Land                                                                |   | 2,257,000          |       | 2,412,000              |   |
| Buildings and  improvements                                         |   | 29,499,000         |       | 29,549,000             |   |
| Machinery and  equipment                                            |   | 22,290,000         |       | 21,840,000             |   |
|                                                                |   |               |       |                   |   |
|                                                                |   | 54,046,000         |       | 53,801,000             |   |
|                                                                |   |               |       |                   |   |
| Less accumulated  depreciation                                      |   | 29,010,000         |       | 28,328,000             |   |
|                                                                |   |               |       |                   |   |
|                                                                |   | 25,036,000         |       | 25,473,000             |   |
|                                                                |   |               |       |                   |   |
| Total assets                                                        |   | $                  | 58,081,000 |                   | $      | 61,499,000 |   |
|                                                                |   |               |       |                   |   |
|                                                                |   |               |       |                   |   |
| **LIABILITIES**                                                     |   |               |       |                   |   |
| Current  liabilities:                                               |   |               |       |                   |   |
| Accounts payable                                                    |   | $                  | 2,951,000  |                   | $      | 2,651,000 |   |
| Floorplan notes  payable                                            |   | 1,955,000          |       | 2,383,000              |   |
| Accrued  compensation & payroll taxes                           |   | 1,297,000          |       | 1,055,000              |   |
| Other accrued  liabilities                                          |   | 5,471,000          |       | 6,906,000              |   |
|                                                                |   |               |       |                   |   |
| Total current  liabilities                                          |   | 11,674,000         |       | 12,995,000             |   |
| Deferred income  taxes                                              |   | 2,450,000          |       | 2,450,000              |   |
| Minority  interest in consolidated subsidiaries                     |   | 1,022,000          |       | 1,097,000              |   |
| Contingent  liabilities (see notes)                                 |   | —             |       | —                 |   |
|                                                                |   |               |       |                   |   |
|                                                                |   |               |       |                   |   |
| **SHAREHOLDERS’ EQUITY**                                       |   |               |       |                   |   |
| Capital Stock:                                                      |   |               |       |                   |   |
| Class A, $1 par  value                                              |   |               |       |                   |   |
| Authorized-7,500,000  Shares                                        |   |               |       |                   |   |
| Issued &  outstanding-2,086,000 in 2002 & 2,088,000 in 2001 |   | 2,086,000          |       | 2,088,000              |   |
| Class B, $1 par  value                                              |   |               |       |                   |   |
| Authorized-3,500,000  Shares                                        |   |               |       |                   |   |
| Issued &  outstanding-1,659,000 in 2002 & 1,665,000 in 2001 |   | 1,659,000          |       | 1,665,000              |   |
|                                                                |   |               |       |                   |   |
| Other capital                                                       |   | 83,000             |       | 83,000                 |   |
|                                                                |   |               |       |                   |   |
| Retained  earnings                                                  |   | 39,107,000         |       | 41,121,000             |   |
|                                                                |   |               |       |                   |   |
|                                                                |   | 42,935,000         |       | 44,957,000             |   |
|                                                                |   |               |       |                   |   |
| Total  liabilities and shareholders’ equity                    |   | $                  | 58,081,000 |                   | $      | 61,499,000 |   |

 

2

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LIBERTY HOMES,INC.

 

CONSOLIDATED STATEMENT OF INCOME

 

for the threemonths ended June 30, 2002 and 2001

 

----

 
|                                                                           |   | **2002**   |       | **2001**   |   |
|--------------------------------------------------------------------------------|--------|------------|------------|------------|--------|
|                                                                           |   |       |       |       |   |
| Net sales                                                                      |   | $          | 24,668,000 |       | $      | 31,577,000 |   |
|                                                                           |   |       |       |       |   |
| Cost of sales                                                                  |   | 21,001,000 |       | 26,738,000 |   |
|                                                                           |   |       |       |       |   |
| Gross profit                                                                   |   | 3,667,000  |       | 4,839,000  |   |
|                                                                           |   |       |       |       |   |
| Selling,  delivery, general and administrative expenses                        |   | 4,497,000  |       | 4,656,000  |   |
|                                                                           |   |       |       |       |   |
| Operating income  (loss)                                                       |   | (830,000   | )          | 183,000    |   |
|                                                                           |   |       |       |       |   |
| Interest expense                                                               |   | (46,000    | )          | (96,000    | )      |
| Interest and  other income                                                     |   | 104,000    |       | 112,000    |   |
|                                                                           |   |       |       |       |   |
| Income (loss)  before minority interest and income taxes                       |   | (772,000   | )          | 199,000    |   |
|                                                                           |   |       |       |       |   |
| Minority  interest                                                             |   | 47,000     |       | (17,000    | )      |
|                                                                           |   |       |       |       |   |
| Income tax  benefit (expense)                                                  |   | 263,000    |       | (75,000    | )      |
|                                                                           |   |       |       |       |   |
| Net income  (loss)                                                             |   | $          | (462,000   | )          | $      | 107,000 |   |
|                                                                           |   |       |       |       |   |
| Net income  (loss) per outstanding Common Share — basic and fully diluted |   | $          | (.12       | )          | $      | .03 |   |
|                                                                           |   |       |       |       |   |
| Weighted average  shares outstanding                                           |   | 3,745,000  |       | 3,753,000  |   |
|                                                                           |   |       |       |       |   |
| Cash dividend  per share:                                                      |   |       |       |       |   |
|                                                                           |   |       |       |       |   |
| Class A Common  Stock                                                          |   | $          | .07        |       | $      | .07 |   |
|                                                                           |   |       |       |       |   |
| Class B Common  Stock                                                          |   | $          | .07        |       | $      | .07 |   |

 

3

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LIBERTY HOMES, INC.

 

CONSOLIDATED STATEMENT OF INCOME

 

for the six monthsended June 30, 2002 and 2001

 

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|                                                                  |   | **2002**   |       | **2001**   |   |
|-----------------------------------------------------------------------|--------|------------|------------|------------|--------|
|                                                                  |   |       |       |       |   |
| Net sales                                                             |   | $          | 46,567,000 |       | $      | 56,338,000 |   |
|                                                                  |   |       |       |       |   |
| Cost of sales                                                         |   | 40,293,000 |       | 48,411,000 |   |
|                                                                  |   |       |       |       |   |
| Gross profit                                                          |   | 6,274,000  |       | 7,927,000  |   |
|                                                                  |   |       |       |       |   |
| Selling,  delivery, general and administrative expenses               |   | 8,612,000  |       | 9,517,000  |   |
|                                                                  |   |       |       |       |   |
| Operating loss                                                        |   | (2,338,000 | )          | (1,590,000 | )      |
|                                                                  |   |       |       |       |   |
| Interest expense                                                      |   | (92,000    | )          | (226,000   | )      |
| Interest and  other income                                            |   | 130,000    |       | 238,000    |   |
|                                                                  |   |       |       |       |   |
| Loss before  minority interest and income taxes                       |   | (2,300,000 | )          | (1,578,000 | )      |
|                                                                  |   |       |       |       |   |
| Minority  interest                                                    |   | 75,000     |       | (23,000    | )      |
|                                                                  |   |       |       |       |   |
| Income tax  benefit                                                   |   | 782,000    |       | 594,000    |   |
|                                                                  |   |       |       |       |   |
| Net loss                                                              |   | $          | (1,443,000 | )          | $      | (1,007,000 | ) |
|                                                                  |   |       |       |       |   |
| Net loss per  outstanding Common Share — basic and fully diluted |   | $          | (.39       | )          | $      | (.27 | ) |
|                                                                  |   |       |       |       |   |
| Weighted average  shares outstanding                                  |   | 3,747,000  |       | 3,753,000  |   |
|                                                                  |   |       |       |       |   |
| Cash dividend  per share:                                             |   |       |       |       |   |
|                                                                  |   |       |       |       |   |
| Class A Common  Stock                                                 |   | $          | .14        |       | $      | .14 |   |
|                                                                  |   |       |       |       |   |
| Class B Common  Stock                                                 |   | $          | .14        |       | $      | .14 |   |

 

4

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LIBERTY HOMES,INC.

 

CONSOLIDATED STATEMENT OF CASH FLOWS

 

for the six monthsended June 30, 2002 and 2001

----

|                                                                       |   | **2002**   |       | **2001**   |   |
|----------------------------------------------------------------------------|--------|------------|------------|------------|--------|
| Cash flows  provided by (used in) operating activities:                    |   |       |       |       |   |
| Net loss                                                                   |   | $          | (1,443,000 | )          | $      | (1,007,000 | ) |
| Adjustment to  reconcile net loss to net cash used in operating activities |   |       |       |       |   |
| Depreciation                                                               |   | 1,036,000  |       | 1,227,000  |   |
| Minority  interest                                                         |   | (75,000    | )          | 23,000     |   |
| Gain of sale of  fixed assets                                              |   | (61,000    | )          | —     |   |
| Net value of  retail center assets written off                             |   | —     |       | 151,000    |   |
| Changes in  assets and liabilities:                                        |   |       |       |       |   |
| Receivables                                                                |   | (274,000   | )          | (576,000   | )      |
| Income taxes  payable/receivable                                           |   | (50,000    | )          | 2,994,000  |   |
| Inventories                                                                |   | 248,000    |       | 1,844,000  |   |
| Prepayments and  other                                                     |   | 132,000    |       | (50,000    | )      |
| Accounts payable                                                           |   | 300,000    |       | 255,000    |   |
| Other current  liabilities                                                 |   | (1,193,000 | )          | (1,610,000 | )      |
|                                                                       |   |       |       |       |   |
| Net cash used in  operating activities                                     |   | (1,380,000 | )          | 3,251,000  |   |
|                                                                       |   |       |       |       |   |
| Cash flows  provided by (used in) investing activities                     |   |       |       |       |   |
| Additions to  property, plant and equipment                                |   | (862,000   | )          | (287,000   | )      |
| Proceeds from  sale of fixed assets                                        |   | 324,000    |       | —     |   |
| Redemption of  short-term investments                                      |   | —     |       | 50,000     |   |
|                                                                       |   |       |       |       |   |
| Net cash used in  investing activities                                     |   | (538,000   | )          | (237,000   | )      |
|                                                                       |   |       |       |       |   |
| Cash flows  provided by (used in) financing activities                     |   |       |       |       |   |
| Cash dividends  paid                                                       |   | (525,000   | )          | (525,000   | )      |
| Proceeds from  notes payable                                               |   | 481,000    |       | 2,833,000  |   |
| Payments of  notes payable                                                 |   | (909,000   | )          | (5,056,000 | )      |
| Retirement of  common stock                                                |   | (54,000    | )          | —     |   |
|                                                                       |   |       |       |       |   |
| Net cash used in  financing activities                                     |   | (1,007,000 | )          | (2,748,000 | )      |
|                                                                       |   |       |       |       |   |
| Net increase  (decrease) in cash and cash equivalents                      |   | (2,925,000 | )          | 266,000    |   |
|                                                                       |   |       |       |       |   |
| Cash and cash  equivalents at beginning of period                          |   | 7,223,000  |       | 4,896,000  |   |
|                                                                       |   |       |       |       |   |
| Cash and cash  equivalents at end of period                                |   | $          | 4,298,000  |       | $      | 5,162,000 |   |
|                                                                       |   |       |       |       |   |
| Supplemental  disclosures of cash flow information.                        |   |       |       |       |   |
| Cash received  for income taxes                                            |   | $          | 749,000    |       | $      | 3,445,000 |   |
| Cash paid for  interest expense                                            |   | 92,000     |       | 223,000    |   |

 

5

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**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

 

SHORT TERMINVESTMENTS:

 

Short-terminvestments consist primarily of certificates of deposits with originalmaturities greater than 90 days.

 

 

INVENTORIES:

 

Inventories arestated at the lower of cost or market, with cost determined on a first-in,first-out basis.  Inventories at June30, 2002 consist of: 

 

| Raw Material     |   | $         | 5,766,000  |   |
|------------------|--------|-----------|------------|--------|
| Work in Progress |   | 1,906,000 |       |
| Finished Goods   |   | 4,647,000 |       |
|             |   | $         | 12,319,000 |   |

 

 

NOTES PAYABLE:

 

               At June 30, 2002,the Company had the following notes payable: 

 

| Revolving credit  lines of $4,325,000 secured by retail subsidiary inventory bearing interest  at 1/2% over prime rate |   | $      | 1,955,000 |   |
|------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|
|                                                                                                                   |   |   |      |
| Unsecured  revolving credit line of $5,000,000 bearing interest at 1/2% under prime                                    |   | — |      |
|                                                                                                                   |   | $      | 1,955,000 |   |

 

 

CONTINGENTLIABILITIES:

 

Repurchase Obligations

 

               The Company iscontingently liable under terms of repurchase agreements with various financialinstitutions which provide for the repurchase of its homes sold to dealersunder floor plan financing arrangements upon dealer default.  The Company’s exposure to loss under suchagreements is reduced by the resale of the repurchased home.  The Company believes any losses incurredunder outstanding repurchase agreements in

 

6

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excess of the accruals established as of June 30, 2002 will not have asignificant impact on the financial condition of the Company.  However, any substantial increases in dealerdefaults after June 30, 2002 may cause the Company to incur additional lossesdue to repurchase activity.

 

 

REVENUERECOGNITION:

 

The Companyrecognizes revenue when the product is shipped to independent dealers.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results ofOperations.

 

Results ofOperations

 

The environment inwhich the Company currently operates continues to suffer from many challengesincluding wholesale and retail credit tightening, pricing pressure andcompetition from repossessed homes, dealer failures and a somewhat unstablenational economy.  The impact of theseconditions has resulted in lower sales for the Company during the secondquarter of 2002 compared to 2001.

 

Net sales for thesecond quarter of 2002 were $24,668,000, a decrease of $6,909,000 from the samequarter of 2001.  Practically all theCompany’s sales are to independent dealers and developers.  This customer base struggles to find replacementsfor inventory financing as the traditional sources continue to drop out of theinventory financing business.  As thesesources dry up, dealers are forced to liquidate inventory and then cannot findan equal amount of credit from other sources to replace inventory.  Credit standards for retail buyers aretighter, chattel mortgages are less available and traditional real estatemortgage financing is slow to be put in place. Therefore, dealers are unable to

 

7

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find financing formany interested buyers.  Both of thesecredit conditions as well as competition from repossessed homes has resulted inlower orders to the Company.

 

Lower sales havetrimmed gross profit and income.  Grossprofit for the second quarter of 2002 was $3,667,000, a $1,172,000 drop fromthe same quarter in 2001. Although the Company was able to reduce its otherexpenses, the reduction of gross profit could not be covered and a net loss of$462,000 resulted for the second quarter of 2002.

 

 

Liquidity andCapital Resources

 

As normal fromprior years, liquidity and capital resources dropped during the six months fromthe Company’s position at December 31, 2001. Cash, cash equivalents and short term investments as of June 30, 2002and December 31, 2001 were $4,598,000 and $7,523,000, respectively.  Working capital as of June 30, 2002 andDecember 31, 2001 was $21,371,000 and $23,031,000, respectively.  Expenditures for operations were the mainuses of capital resources during the quarter. The Company anticipates that cash flow from operations and creditarrangements currently in place will be sufficient to meet the Company’sforeseeable requirements.

 

 

Outlook and RiskFactors

 

                As indicated inthe Results of Operations section, many factors are challenging the Company andthe manufactured housing industry. Credit problems at both the wholesale and retail levels will continue tohave adverse effects until financial institutions provide more capital.  Repossessed home inventory still remainshigh and, coupled with discounts and less restrictive underwriting of loans forthese repossessed homes, new home orders

 

8

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will suffer.

 

Since the Companyproduces only to dealer orders and sales backlogs are traditionally short, theorder activity at the Company is indicative of the day to day retail salesactivity of its products.  Changesaffecting retail customer demand, such as cost, availability of credit andunemployment, have an immediate effect on the Company’s operations.

 

It is a commonpractice for manufactured housing producers to participate in dealer financingprograms which require the manufacturer to repurchase homes which remain unsoldand in dealer inventory within a certain time period, usually 12 to 18 monthsfollowing delivery to the dealer, if the dealer defaults on its financingobligations.  When initiated, thisrepurchase obligation brings homes back into the wholesale market and mayresult in some discounting as the units are resold.  Currently, the industry has a significant level of theserepurchased homes as well as homeowner repossessions that will compete withfuture orders to factories for new homes. The Company believes the reserves accrued at June 30, 2002 are adequatefor known repurchase requirements that it may have at that date.  However, any substantial increases in dealerdefaults after June 30, 2002 may cause the Company to incur additional lossesdue to repurchase activity.

 

 

Forward Looking Information

 

The discussionabove contains forward looking statements within the meaning of the Private SecuritiesLitigation Reform Act of 1995.  Thesestatements include statements regarding industry and company outlooks and riskfactors.  The Company may make otherforward looking statements orally or in writing from time to time.  All such forward looking

 

9

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statements are not guaranties of future events or performance andinvolve risks and uncertainties.  Actualresults may differ materially from those in the forward looking statements asthe result of a number of material factors. These factors include without limitation, the availability of financingcredit at both the wholesale and retail level, the availability of a competentworkforce, 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 theeconomy and its effect on consumer confidence.

 

**PARTII - OTHER INFORMATION**

 

 

 

Item 6. Exhibits and Reports on Form 8–K

 

No reports on Form8–K for April, May or June, 2002 have been filed.

 

10

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**SIGNATURE**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

| LIBERTY HOMES, INC.                            |
|------------------------------------------------|
| Registrant                                     |
|                                           |
|                                           |
| BY:  /s/ MARC A. DOSMANN                  |
| Marc A. Dosmann                                |
| Vice President —  Chief Financial Officer |
| (Principal  Financial and Accounting Officer)  |

 

Dated  August 14, 2002

 

**CERTIFICATION**

By signing below, each ofthe undersigned officers hereby certifies pursuant to 18 U.S.C. § 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to hisor her knowledge, (i) this report fully complies with the requirements ofsection 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) theinformation contained in this report fairly represents, in all materialaspects, the financial condition and results of operations of Liberty Homes,Inc.

 

Signed this 14thday of August, 2002.

 
| /s/ MARC A. DOSMANN                |   | /s/ EDWARD J. HUSSEY               |
|------------------------------------|--------|------------------------------------|
| (Signature of  Authorized Officer) |   | (Signature of  Authorized Officer) |
|                               |   |                               |
| Marc A. Dosmann, VP —  CFO    |   | Edward J. Hussey,  President       |
| Typed Name & Title             |   | Type Name & Title              |

 

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