-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RAK7LLCDfFZiXb5HM5F3aLHCanImiVMKSYvY3F4sZIAJe1LJk8KLyRaCUX/F49XE cUOYfugEjCEp8EuIDuew7Q== 0000912057-00-014771.txt : 20000331 0000912057-00-014771.hdr.sgml : 20000331 ACCESSION NUMBER: 0000912057-00-014771 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIBERTY HOMES INC CENTRAL INDEX KEY: 0000059240 STANDARD INDUSTRIAL CLASSIFICATION: PREFABRICATED WOOD BLDGS & COMPONENTS [2452] IRS NUMBER: 351174256 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-05555 FILM NUMBER: 585380 BUSINESS ADDRESS: STREET 1: PO BOX 35 STREET 2: 1101 EISENHOWER DR N CITY: GOSHEN STATE: IN ZIP: 46527-0035 BUSINESS PHONE: 2195330431 MAIL ADDRESS: STREET 1: P O BOX 35 CITY: GOSHEN STATE: IN ZIP: 46527-0035 10-K405 1 FORM 10-K 405 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (Mark ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) One) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) X FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999. - ------ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) - ------ FOR THE TRANSITION PERIOD FROM _______ TO _______. Commission File Number 0-5555 LIBERTY HOMES, INC. (Exact name of registrant as specified in its charter) Indiana 35-1174256 (State of Incorporation) IRS Employer Identification No. PO Box 35, Goshen, Indiana 46527-0035 (Address of Principal Executive Offices) (ZIP Code) Registrant's telephone number (219) 533-0431 Securities registered pursuant to Section 12 (g) of the Act: Name of Each Exchange TITLE OF EACH CLASS ON WHICH REGISTERED - ------------------- ------------------- Class A Common Stock NASDAQ Class B Common Stock NASDAQ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K /X/ As of March 20, 2000, the aggregate market value of the voting Common Stock Class B, held by nonaffiliates (based upon the closing price on such date) was approximately $1,700,000. Number of shares outstanding of each of the registrant's classes of common stock Shares of Outstanding CLASS AT MARCH 20, 2000 ----- ----------------- Class A Common Stock, $1.00 par value 2,197,908 Class B Common Stock, $1.00 par value 1,706,247 The Exhibit Index is located on page 12. PART I FORWARD LOOKING INFORMATION - The discussion below 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, unanticipated results in pending legal proceedings and the condition of the economy and its effect on consumer confidence. ITEM 1. BUSINESS Liberty Homes, Inc. (the "Company") was organized as an Indiana corporation in 1970 as the successor to a business founded in 1941. The Company designs, manufactures and sells at wholesale throughout most of the United States a broad line of manufactured homes under various trade names. Additionally, it sells at retail in two Company-owned retail centers in Indiana and North Carolina. Constructed on a wheel-mounted under-carriage, a manufactured home is a relocatable factory-built dwelling which, when moved to a location, properly set up and connected to utilities, provides permanent housing. A manufactured home may also consist of two or more units which are moved separately and when securely joined together are called multi-sectional housing. A manufactured home is to be distinguished from a travel trailer, motor home or other recreational vehicle which is generally used for living accommodations during relatively short periods, primarily for vacation and recreational purposes. The Company's typical manufactured home contains a living room, dining area, kitchen 2 equipped with range and refrigerator, two, three, four or five bedrooms, and one or more baths complete with tub and/or shower, flush toilet and lavatory. The homes are equipped with central heating, carpeting, a choice of coordinated colors and interior decoration, and a wide range of floor plans. Single section homes are 12, 14 or 16 feet wide and vary in overall length from 36 to 80 feet (including about 4 feet for the hitch). Multi-section homes are two or more 12, 14, 15 or 16 foot wide sections, with overall lengths ranging from 36 to 80 feet (including about 4 feet for the hitch). The Company utilizes assembly line techniques in the production of its homes. Lumber for walls, roofs, ceilings and floors, steel, wood or vinyl siding, ceiling materials, windows, furniture, electrical and plumbing fixtures, and many other items are purchased from numerous suppliers for fabrication or assembly. Sources of material are readily available and the Company is not dependent upon any particular supplier for its raw materials or component parts. Aside from sales at its two retail centers, the Company sells its products to numerous independent dealers, most of whom also sell competing products. In the year ended December 31, 1999, the Company's largest dealer accounted for approximately three percent of the Company's sales. The Company generally manufactures its homes only after receipt of orders from its dealers, and sales backlogs in the manufactured housing industry are traditionally short. Retail prices for the Company's single section homes typically range from approximately $25,000 to $50,000 and from approximately $35,000 to $100,000 for multi-sections. The Company's homes generally fall within the low to mid price range of the industry. Manufactured homes were sold by the Company during 1999 to dealers in most of the continental United States. Transportation charges from the point of manufacture to the dealer are an important factor in the cost of a manufactured home and often influence a dealer's preference for similar products. In general, most retail outlets are located within a 500 mile radius of the manufacturing facility serving the dealer. In each of the geographical areas in which the Company operates, it faces direct competition 3 from other manufacturers, some of whom are larger than the Company and possess greater financial resources. This group of competitors consists of manufacturers who compete with the Company on a national level as well as many others who are only regional in scope. According to data from the National Conference of States on Building Codes and Standards (NCSBCS) at the end of 1999, there were 71 companies operating 323 facilities producing manufactured housing in the United States. Due to transportation complexities, none of the Company's products, and very little of the industry's products are shipped outside the United States. Since the manufactured homes sold by the Company are a form of housing, changes in factors which influence the national housing market usually affect the Company's business, either beneficially or adversely. In addition, the quality and number of manufactured home developments with space available for new homes sometimes affect the market for manufactured homes. Manufactured home parks and placement of manufactured homes on real-estate type scattered sites or subdivisions are generally subject to local zoning ordinances and other local regulations. Any limitation of the availability of space for manufactured homes due to any cause, including such local ordinances, could adversely affect the Company's business. In 1999, Irish Homes, Inc., a wholly-owned subsidiary of the Company, began a retail center in Elkhart, Indiana. Irish Homes, Inc., commenced operations in 1988 to develop subdivisions using the Company's manufactured homes. The homes located within subdivisions include a garage and are placed on a foundation with landscaping, concrete and other work, performed on site by independent contractors. In 1998, Statesville Housing Center, Inc. was formed as a wholly-owned subsidiary of the Company and began operations as a retail dealer of the Company's homes. This retail center is located in Statesville, North Carolina within a mile of one of the Company's manufacturing plants. During 1997, the Company formed Gipper Development Company, LLC, a majority owned entity, which is developing a manufactured housing community in Northern Indiana. The 4 development includes only homes manufactured by the Company. In 1994, the Company formed Waverlee Homes, Inc., a majority owned subsidiary, which operates production facilities in Hamilton and Tuscumbia, Alabama. This operation incorporates many state-of-the-art manufacturing concepts and enhances the Company's ability to serve the market in the South Central United States. The Company's ability to sell is dependent to a considerable degree upon the availability and terms of financing both to its dealers and to retail customers. Consequently, increases in interest rates or tightening of credit through governmental action or otherwise could adversely affect the Company's business. Conversely, a lowering of interest rates or relaxation of credit restraints could improve the Company's business. Because of their size and weight, manufactured homes are generally transported by specially modified trucks. Most states require special permits for the movement of such homes. Typically, these permits prescribe the roads to be used, speed limits, hours during which travel is permitted, types of signaling devices which must be used, and other such restrictions, primarily for safety purposes. Seasonal weather conditions can also be a factor for transportation. The construction of manufactured homes, and the plumbing, heating and electrical systems installed therein, are subject to the National Manufactured Home Construction and Safety Standards promulgated by the U.S. Department of Housing and Urban Development (HUD) pursuant to authority granted them by the National Manufactured Home Construction and Safety Standards Act of 1974. HUD has also promulgated lengthy and complex regulations to implement and enforce the construction standards, and there are substantial penalties for deviations from the regulations. Dealers who purchase from the Company generally obtain inventory financing from financial institutions (usually banks or finance companies) on a "floor plan" basis whereby the financial institution obtains a lien upon, or title to, all or part of a dealer's inventory. To assist dealers in obtaining such financing, the Company, in accordance with trade practice, generally enters into 5 repurchase agreements with lending institutions whereby the Company, during the period (generally not in excess of one year) pending sale to a retail customer, agrees to repurchase a home so financed in the event of the dealer's default and subsequent inability to repay the amount borrowed from the financial institution. In the event of repurchase, the Company will experience a loss if the repurchase price paid to the financial institution plus any related costs of repossession (e.g., freight, repairs) exceed the proceeds received by the Company from resale of the home repurchased. The Company's losses under these dealer repurchase agreements have not been significant. Retail customers often finance their purchases with funds borrowed from banks, finance companies and savings and loan associations. Such retail finance arrangements sometimes call for an effective interest rate considerably higher than that imposed for conventional home mortgage financing. EMPLOYEES As of March 13, 2000, the Company had approximately 1,350 full-time employees. ITEM 2. PROPERTIES. Syracuse, Indiana Sheridan, Oregon Yoder, Kansas Ocala, Florida Dorchester, Wisconsin Statesville, North Carolina Plant #1 Hamilton, Alabama Plant #2 Tuscumbia, Alabama Leola, Pennsylvania Goshen, Indiana The Company's executive office and engineering and design center is located in Goshen, Indiana. The remaining locations are manufacturing facilities. The Company owns all of its properties in fee simple and believes that its facilities and equipment contained therein are well maintained and in good condition. All of the Company's manufacturing facilities are intended for the manufacture of manufactured homes, and in the Company's judgment, all are adequate for their current use. The Company's plants are utilized during one shift per day. 6 ITEM 3. LEGAL PROCEEDINGS. 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to a vote of security holders for the three months ended December 31, 1999. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's 1999 Annual Report to Shareholders is an exhibit of this filing. The information under the caption "Capital Stock" on page four of the report is incorporated by reference as Item 5 of this filing. ITEM 6. SELECTED FINANCIAL DATA. The Company's 1999 Annual Report to Shareholders is an exhibit of this filing. The information under the caption "Selected Financial Data" on page one of the report is incorporated by reference as Item 6 of this filing. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The Company's 1999 Annual Report to Stockholders is an exhibit of this filing. The information contained on pages one through three of the report under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" is incorporated by reference as Item 7 of this filling. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 7 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Company's 1999 Annual Report to Stockholders is an exhibit of this filing. The 1999, 1998 and 1997 consolidated financial statements and footnotes thereto, together with the report thereon of Crowe, Chizek and Company LLP dated February 15, 2000, on pages six through fourteen of the report are incorporated by reference as Item 8 of this filing. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Edward J. Hussey, age 82, has been President, Chairman of the Board and a Director of the Company (or it predecessors) since 1960, and is the father of Edward Joseph Hussey and Michael F. Hussey. Edward Joseph Hussey, age 52, is an attorney and a son of Edward J. Hussey. He has been a Director of the Company since 1981, Secretary of the Company since 1985 and was named Vice President of the Company in 1990. In September, 1987, he began employment with the Company on a full time basis. Since 1975, he has been associated with the law firm of Hodges & Davis P.C., where he is still a shareholder. Michael F. Hussey, age 43, has been employed by the Company since 1980. He was named Vice President of Finance in 1984 and became a Director in 1988. He is the son of Edward J. Hussey. David M. Huffine, age 51, has been a Director of the Company since 1988. He has also held the position of President of I.M. Homes, Inc., Rocky Ford, Colorado since 1997. Prior thereto, he was President of Sky View Homes, Inc., Chairman of the Board of Rampart Investigations, and Vice President of Calumet Securities Corporation. Mitchell Day, age 44, has been a Director since 1995. He has also been President of Day 8 Equipment Corporation, Goshen, Indiana since 1984. Ralph D. Ray, age 67, has been employed in various management positions with the Company for 30 years. He has been Treasurer of the Company since 1984. Dorothy L. Peterson, age 88, has been employed with the Company since 1952. She was appointed Assistant Treasurer in 1985. Marc A. Dosmann, age 47, joined the Company in February, 1995 as Vice President and Chief Financial Officer. From January, 1990 to February, 1995, he was Corporate Controller of Leer, Inc. Bruce A. McMillan, age 48, has served the Company in various capacities for 25 years. He was appointed to the position of Vice President of Sales in 1994. Ronald Atkins, age 49, has served the Company in manufacturing and purchasing functions since 1981. During 1996, he was appointed to the position of Vice President of Purchasing. Nader Tomasbi, age 40, joined the Company in July 1994. In 1998, he was appointed as Vice President of Engineering and Design. Brian L. Christner, age 40, joined the Company in December 1994 as Controller. Previously he was Controller at Life Treatment Centers, Inc. ITEM 11. EXECUTIVE COMPENSATION. The Company's Proxy Statement for the Annual Meeting of Shareholders to be held on April 27, 2000 includes information under the captions "Executive Compensation and Shareowner Return Performance Presentation" on pages six through eight. Those sections are exhibits of this filing and are incorporated by reference as Item 11 of this filing. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The Company's Proxy Statement for the Annual Meeting of Shareholders to be held on April 27, 2000 includes information under the caption "Shares Outstanding and Voting Rights" on pages two and three. This section is an exhibit of this filing and is incorporated by reference as Item 12 9 of this filing. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Company's Proxy Statement for the Annual Meeting of Shareholders to be held April 27, 2000 includes information in footnotes four and seven on page five. This information is incorporated by reference as item 13 of this filing. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of this report on Form 10-K:
1. FINANCIAL STATEMENTS Consolidated Balance Sheet at December 31, 1999 and 1998 See Shareholder Annual Report Page 6 Consolidated Statements of Income See Shareholder Annual Report for Years Ended December 31, 1999, 1998 and 1997 Page 8 Consolidated Statements of Changes in Shareholders' See Shareholder Annual Report Equity for the Years Ended December 31, 1999, 1998 Page 8 and 1997 Consolidated Statements of Cash Flows for the Years See Shareholder Annual Report Ended December 31, 1999, 1998 and 1997 Page 9 Notes to Consolidated Financial Statements See Shareholder Annual Report Page 10 Report of Independent Auditors See Shareholder Annual Report (Crowe, Chizek and Company LLP) Page 14
(a) 3. EXHIBITS The exhibits filed with this Form 10-K are listed in the exhibit index located on page 12. (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the three months ended December 31, 1999. 10 SIGNATURES Following the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LIBERTY HOMES, INC. (Registrant) March 29, 2000 By: /S/ MARC A. DOSMANN ----------------------- Marc A. Dosmann Vice President - CFO (Principal Financial and Accounting Officer) Following the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Edward J. Hussey ------------------------------------ Edward J. Hussey President, Director, Chairman of the Board of Directors (Principal Executive Officer) March 29, 2000 /s/ Edward Joseph Hussey Director, Vice President, Secretary ------------------------------------- & Assistant Treasurer Edward Joseph Hussey March 29, 2000 /s/ Michael F. Hussey Director and Vice President - Finance -------------------------------------- March 29, 2000 Michael F. Hussey 11
EXHIBIT INDEX PAGE 3(a) Articles of Incorporation of the Company. * (File #0-5555, Form 10-K for the year ended December 31, 1984) 3(b) Amendment to Articles of Incorporation. * (File #0-5555, Form 10-Q for the quarter ended March 31, 1985, Exhibit 4). 3(c) By-laws of the Company. * (File #0-5555, Form 10-K for the year ended December 31, 1987) 10(a) Employment Agreement between the Company * and Edward Joseph Hussey dated September 14, 1993 (File #0-5555, Form 10-K for the year ended December 31, 1993). 10(b) Employment Agreement between the Company and Michael F. Hussey * dated September 14, 1993 (File #0-5555, Form 10-K for the year ended December 31, 1993). 10(c) Split-Dollar Insurance Plan effective June 11, 1993 between the * Company and Nancy A. Parrish and Michael F. Hussey, Trustees for the Edward Joseph Hussey 1993 Irrevocable Trust (File #0-5555, Form 10-K for the year ended December 31, 1993) 10(d) Split-Dollar Insurance Plan effective June 11, 1993 between * the Company and Nancy A. Parrish and John P. Hussey, Trustees for the Michael F. Hussey 1993 Irrevocable Trust (File #0-55555, Form 10-K for the year ended December 31, 1993) 13 Annual Report to Shareholders for 1999 (Except for those portions of this report which are expressly incorporated by reference in this Form 10-K, the information contained in such 1999 Annual Report to Shareholders is not deemed "filed" as part of this Form 10-K).
21 List of Subsidiaries 27 Financial Data Schedule * Incorporated by reference 12 EX-13 2 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 located in Statesville, North Carolina and Elkhart, Indiana. The Company currently operates manufacturing plants in Syracuse, Indiana; Yoder, Kansas; Dorchester, Wisconsin; Leola, Pennsylvania; Sheridan, Oregon; Ocala, Florida; Statesville, North Carolina; Hamilton, Alabama; and Tuscumbia, 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)
1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Net Sales $ 176,314 $ 184,920 $ 167,837 $ 168,139 $ 164,753 Net income $ 2,162 $ 4,562 $ 3,034 $ 4,553 $ 6,356 Net income per share $ .55 $ 1.15 $ .74 $ 1.06 $ 1.42 Total assets $ 75,088 $ 77,219 $ 71,482 $ 72,166 $ 69,127 Long term obligations -- -- -- -- -- Cash dividends per share: Class A common stock $ .28 $ .28 $ .28 $ .28 $ .28 Class B common stock $ .28 $ .28 $ .28 $ .28 $ .28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES - Cash and cash equivalents and short-term investments as of December 31, 1999 and 1998 totaled $17,090,000 and $23,741,000, respectively. Working capital was $31,803,000 at year end 1999 and $31,075,000 at year end 1998. There was no bank debt, bonds or notes payable at December 31, 1999 and 1998. Historically, the Company's financing needs have been met through funds generated internally. The Company invested $2,963,000 in capital expenditure programs during 1999. An expansion of the Ocala, Florida manufacturing facility was begun and mostly completed during the year. The remaining projects were spread throughout the Company and included improvements to production efficiency, retail operations and replacement of existing equipment. 1 Additionally, the Company continued to repurchase shares of its Class A and Class B Common Stock under a program initiated in 1994. During 1999, the Company repurchased a total of 39,000 Class A shares and 9,000 Class B shares. At the end of 1999, a total of 643,000 Class A Common Shares and 24,000 Class B Common Shares had been repurchased and cancelled. The Company plans to continue such repurchases on the open market or in negotiated transactions at management's discretion. During 2000, the Company anticipates that cash flow from operations and cash reserves will be sufficient to meet the requirements for capital expenditures, working capital, stock repurchases and dividend payments. RESULTS OF OPERATIONS - Net sales in 1999 were $176,314,000, a $8,606,000 or 5% decrease from 1998 net sales of $184,920,000. Net sales in 1998 increased by $17,083,000 or 10% from $167,837,000 in 1997. The decrease in net sales from 1998 to 1999 coincided with a downturn in sales in the manufactured housing industry caused by overproduction of homes relative to retail sales in the prior periods and a tightening of credit by finance companies. The Company's product mix of single-section homes and multi-section homes has stabilized. During 1999 and 1998, 55% of the homes sold by the Company were homes comprised of two or more sections. Gross profit was $22,330,000 or 13% of net sales in 1999, $25,702,000 or 14% of net sales in 1998 and $20,246,000 or 12% of net sales in 1997. Changes in sales volume and the fixed nature of some of the Company's manufacturing costs account for much of the variance of gross profit. Wood product and gypsum price increases during 1999 also caused gross profit deterioration. Selling, general and administrative expenses amounted to $19,204,000 in 1999, $19,024,000 in 1998 and $16,366,000 in 1997. During 1999, these expenses fell in the Company's manufacturing operations while rising in the retail and development operations. Interest and other income was $1,139,000 in 1999, $1,286,000 in 1998 and $1,027,000 in 1997 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. Net income of $2,162,000 in 1999 compared to $4,562,000 in 1998 and $3,034,000 in 1997. Net income during 1999 fell from 1998 as a result of lower sales and increased material costs, particularly lumber products and gypsum board, which due to competitive conditions could not be reflected in increased selling prices. OUTLOOK AND RISK FACTORS - Nationally the manufactured housing industry experienced a manufacturing slump during 1999. Annual production statistics reported by the Manufactured Housing Institute show a 7% drop in home production. Manufacturers' production during prior periods exceeded retail consumer demand and the resulting 2 inventory levels during 1999 negatively impacted orders to the nation's manufacturers during the year. The Company produces only to dealer orders. Sales backlogs are traditionally short and dealer inventories do not fluctuate substantially. Therefore, order activity at the Company is indicative of the day to day retail sales activity of its products. The Company believes consumer housing needs and favorable retail financing for its homes has had a positive impact on the Company. However, changes affecting retail customer demand, such as cost, availability of favorable credit and unemployment, will have an immediate effect on the Company's operations. In a practice common to the industry, the Company participates in dealer financing programs which require it to repurchase homes which remain unsold and in dealer inventory for a period of up to one year after delivery to the dealer, if the dealer defaults on its financing obligations. Repurchased units are resold, although some discounting may be necessary and some loss may occur. Losses on such repurchases are not expected to be material during 2000. The U.S. Department of Housing and Urban Development (HUD) regulates the manufactured housing industry. HUD has in the past issued regulations which affected the content and therefore cost of manufactured homes. Such increases in cost can have an adverse effect on the industry and the Company. However, the Company is unable to quantify the direct impact on the Company's sales. The likelihood of future regulatory activity by HUD is unknown and consequently there can be no assessment of potential future adverse effects of new HUD regulations if such regulations do occur. FORWARD LOOKING INFORMATION - The discussion above contains forward looking statements regarding industry and company outlooks and risk factors. All such forward looking statements are subject to 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 and the condition of the economy and its effect on consumer confidence. 3 CAPITAL STOCK The Company's Class A and Class B Common Stock are traded on the NASDAQ Stock Market. As of March 17, 2000, there were approximately 295 holders of record of the Company's Class A Common Stock and approximately 218 holders of record of the Company's Class B Common Stock. The following table shows the high and low closing price per share for the Company's Class A and Class B Common Stock for each of the quarters in 1999 and 1998 as well as cash dividends declared in each quarter in 1999 and 1998.
PRICE PER SHARE ($) Cash Dividends 1999 1998 PER SHARE ---- ---- --------- HIGH LOW HIGH LOW 1999 1998 ------ ------ ------ ----- ------ ------ First Quarter: Class A Common 11 1/4 9 1/8 10 3/4 9 $.07 $.07 Class B Common 11 10 3/4 11 10 $.07 $.07 Second Quarter: Class A Common 10 7 7/8 11 3/4 9 5/8 $.07 $.07 Class B Common 10 5/8 7 3/8 11 3/8 11 $.07 $.07 Third Quarter: Class A Common 9 15/16 6 3/8 15 1/4 9 3/8 $.07 $.07 Class B Common 9 5/8 8 15 10 1/4 $.07 $.07 Fourth Quarter: Class A Common 9 1/32 6 5/8 11 15/16 10 5/8 $.07 $.07 Class B Common 8 7/8 7 13/16 12 10 1/2 $.07 $.07
4 [LOGO] March 17, 2000 To Our Shareholders: During 1999, Liberty Homes, Inc. generated net sales of $176,314,000. This amount represents a decrease of $8,606,000 from the prior year. Net income for 1999 decreased to $2,162,000 from $4,562,000 in 1998. The year provided many challenges to the industry and to the Company. The decrease in net sales coincided with a downturn in sales in the manufactured housing industry caused by overproduction of homes relative to retail sales in the prior periods and a tightening of credit by finance companies. Net income fell as a result of the lower sales and increased material costs, particularly wood products and gypsum board, which due to competitive conditions could not be reflected in increased selling prices. The Company continued to repurchase shares of its Class A and Class B Common Stock during the year by repurchasing a total of 39,000 Class A shares and 9,000 Class B shares. Also, the Company continued to pay its regular dividend of $.28 per share for the year. 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. Hussey - ----------------------- Edward J. Hussey President pkm 5 CONSOLIDATED BALANCE SHEET December 31, 1999 and 1998 (Amounts in Thousands) ASSETS
1999 1998 ------ ------ CURRENT ASSETS: Cash and cash equivalents $ 10,555 $ 18,441 Short term investments 6,535 5,300 Receivables 10,248 9,107 Inventories 15,327 13,171 Deferred tax asset 2,240 2,500 Income taxes refundable 715 -- Prepayments and other 1,988 1,609 ----------------- ----------------- Total current assets 47,608 50,128 ----------------- ----------------- PROPERTY, PLANT AND EQUIPMENT: Land 1,926 1,524 Buildings and improvements 28,241 26,662 Machinery and equipment 20,742 19,760 ----------------- ----------------- 50,909 47,946 Less accumulated depreciation 23,429 20,855 ----------------- ----------------- 27,480 27,091 ----------------- ----------------- $ 75,088 $ 77,219 ================= =================
The accompanying notes are an integral part of the consolidated financial statements. 6 LIBERTY HOMES, INC. LIABILITIES
1999 1998 ---- ---- CURRENT LIABILITIES: Accounts payable $ 2,216 $ 2,699 Dividends payable 273 277 Income taxes payable -- 1,136 Accrued compensation & payroll taxes 2,479 2,897 Other accrued liabilities 10,837 12,044 ----------------- ----------------- Total current liabilities 15,805 19,053 ----------------- ----------------- DEFERRED INCOME TAXES 2,420 2,270 ----------------- ----------------- MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 1,341 969 ----------------- ----------------- CONTINGENT LIABILITIES SHAREHOLDERS' EQUITY CAPITAL STOCK: Class A, $1 par value, Authorized - 7,500,000 shares Issued and outstanding - 2,198,000 in 1999 and 2,224,000 in 1998 2,198 2,224 Class B, $1 par value, convertible to Class A, authorized - 3,500,000 shares Issued and outstanding - 1,706,000 in 1999 and 1,728,000 in 1998 1,706 1,728 OTHER CAPITAL 83 83 RETAINED EARNINGS 51,535 50,892 ----------------- ----------------- 55,522 54,927 ----------------- ----------------- $ 75,088 $ 77,219 ================= =================
7 CONSOLIDATED STATEMENT OF INCOME For the Years Ended December 31, 1999, 1998 and 1997 (Amounts in Thousands, Except per Share Data)
1999 1998 1997 ---- ---- ---- Net sales $176,314 $184,920 $167,837 Cost of sales 153,984 159,218 147,591 ------------------ ------------------ ------------------ Gross profit 22,330 25,702 20,246 Selling, general and administrative expenses 19,204 19,024 16,366 ------------------ ------------------ ------------------ Operating income 3,126 6,678 3,880 Interest and other income 1,139 1,286 1,027 ------------------ ------------------ ------------------ Income before minority interest and income taxes 4,265 7,964 4,907 Minority interest in consolidated subsidiaries (353) (384) (86) Income tax expense (1,750) (3,018) (1,787) ------------------ ------------------ ------------------ Net income $ 2,162 $ 4,562 $ 3,034 ================== ================== ================== Net income per outstanding common share Class A - basic $.55 $1.15 $0.74 Class A - fully diluted .55 1.15 0.74 Class B - basic .55 1.15 0.74 Class B - fully diluted .55 1.15 0.74 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY For the Years Ended December 31, 1999, 1998 and 1997 (Amounts in Thousands) CLASS A CLASS B COMMON COMMON OTHER RETAINED STOCK STOCK CAPITAL EARNINGS TOTAL Balance, January 1, 1997 $ 2,477 $ 1,746 $ 83 $ 48,117 $ 52,423 Repurchase and cancellation of Class A & Class B Shares (215) (15) (2,133) (2,363) Net income for the year 3,034 3,034 Cash dividends-$.28 per share (1,133) (1,133) -------------- --------------- -------------- ------------ ------------- Balance December 31, 1997 2,262 1,731 83 47,885 51,961 Conversion from Class B to 3 (3) Class A Repurchase and cancellation of Class A Shares (41) (445) (486) Net income for the year 4,562 4,562 Cash dividends-$.28 per share (1,110) (1,110) -------------- --------------- -------------- ------------ ------------- Balance December 31, 1998 2,224 1,728 83 50,892 54,927 Conversion from Class B to A 13 (13) Repurchase and cancellation of Class A & Class B Shares (39) (9) (424) (472) Net income for the year 2,162 2,162 Cash dividends-$.28 per share (1,095) (1,095) -------------- --------------- -------------- ------------ ------------- Balance December 31, 1999 $ 2,198 $ 1,706 $ 83 $ 51,535 $ 55,522 ============== =============== ============== ============ =============
The accompanying notes are an integral part of the consolidated financial statements. 8 CONSOLIDATED STATEMENT OF CASH FLOWS For the Years Ended December 31, 1999, 1998 and 1997 (Amounts in Thousands)
1999 1998 1997 ---- ---- ---- Cash flows from operating activities: Net income $ 2,162 $ 4,562 $ 3,034 ---------------- ---------------- ---------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,574 2,685 2,406 Deferred income taxes 410 (178) 50 Minority interest 353 384 86 Changes in assets and liabilities: Receivables (1,141) (804) 237 Inventories (2,156) (1,189) (1,771) Prepayments and other (379) (159) (258) Accounts payable (483) 359 (1,017) Accrued liabilities (1,629) 903 122 Accrued income taxes (1,851) 966 281 ---------------- ---------------- ---------------- Total adjustments (4,302) 2,967 136 ---------------- ---------------- ---------------- Net cash from (used in) operating activities (2,140) 7,529 3,170 ---------------- ---------------- ---------------- Cash flows from (used in) investing activities: Additions to property, plant & equipment (2,963) (3,282) (2,697) Disposal of (investment in) short term investments (1,235) (50) 7,400 ---------------- ---------------- ---------------- Net cash from (used in) investing activities (4,198) (3,332) 4,703 ---------------- ---------------- ---------------- Cash flows used in financing activities: Cash dividends paid (1,095) (1,110) (1,133) Minority interest contributed capital 19 43 246 Retirement of common stock (472) (486) (2,363) ---------------- ---------------- ---------------- Net cash used in financing activities (1,548) (1,553) (3,250) ---------------- ---------------- ---------------- Net increase (decrease) in cash and cash equivalents (7,886) 2,644 4,623 Cash and cash equivalents, beginning of year 18,441 15,797 11,174 ---------------- ---------------- ---------------- Cash and cash equivalents, end of year $ 10,555 $ 18,441 $ 15,797 ================ ================ ================ Supplemental disclosures of cash flow information - cash paid during the year for income taxes $ 3,191 $ 2,301 $ 1,503 ================ ================ ================
The accompanying notes are an integral part of the consolidated financial statements. 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES: PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Statesville Housing Center, Inc. and Irish Homes, Inc., and its majority owned subsidiaries, Waverlee Homes, Inc., and Gipper Development Company, LLC. 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, 1999 and 1998, 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 three financial institutions at December 31, 1999. INVENTORIES Inventories, consisting principally of raw materials, are stated at the lower of cost or market, with cost determined on a first-in, first-out basis. 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. 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. EARNINGS PER SHARE Basic earnings per share is computed based on weighted average Class A and Class B shares outstanding. Diluted earnings per share further includes the effect of dilutive options and warrants, if any. 10 REVENUE RECOGNITION Revenue is recognized when title is transferred upon shipment. DELIVERY COSTS Revenues and expenses related to delivery of the Company's products are included in cost of sales in the statement of operations. 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 Company's self-funded workers' compensation insurance program and group medical benefit plan. The Company maintains excess loss coverage on the workers' compensation and medical benefit programs through various 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 1999, 1998 and 1997 was 3,916,000 shares, 3,972,000 shares and 4,085,000 shares, respectively. The Board of Directors has approved a stock repurchase program authorizing the Company to repurchase up to 800,000 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, 1999, 643,000 shares of Class A Common Stock and 24,000 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:
(Amounts in Thousands) 1999 1998 1997 ---- ---- ---- Deferred tax asset $ 2,240 $ 2,500 $ 2,206 Deferred tax (liability) $ (2,420) $ (2,270) $ (2,154) ---------------- --------------- --------------- Net deferred tax asset (liability) $ (180) $ 230 $ 52 ================ =============== ===============
11 The tax effects of principal temporary differences and carry forwards are shown in the following table:
1999 1998 1997 ---- ---- ---- Nondeductible accruals & reserves $ 2,166 $ 2,435 $ 2,152 Accelerated tax depreciation $ (2,346) $ (2,205) $ (2,100) ----------------- ----------------- ----------------- $ (180) $ 230 $ 52 ================= ================= ================= The components of income tax expense are as follows: (Amounts in Thousands) 1999 1998 1997 ---- ---- ---- Current: Federal $1,225 $2,795 $1,687 State 115 401 50 Deferred: Federal 338 (148) 39 State 72 (30) 11 -------------- --------------- ---------------- $1,750 $3,018 $1,787 ============== =============== ================
Income tax expense is based on consolidated income before taxes adjusted for non-taxable income and non-deductible expense. The tax expense reconciles with the statutory United States federal income tax rate in 1999, 1998 and 1997 as follows:
INCOME TAX EXPENSE 1999 1998 1997 ---- ---- ---- Income taxes at statutory federal rate 34% $1,502 $2,767 $1,668 State income taxes, net of federal tax effect 123 245 119 Other 125 6 -- ------------- ------------ ------------ $1,750 $3,018 $1,787 ============= ============ ============ Effective Tax Rate 40% 37% 36% ============= ============ ============
4. OTHER ACCRUED LIABILITIES: Other accrued liabilities at December 31, 1999 and 1998 are as follows: (Amounts in Thousands) 1999 1998 ---- ---- Dealer Rebates $6,097 $ 6,219 Product Warranty 1,764 1,764 Insurance 1,488 1,828 Other 1,488 2,233 ------------------ ----------------- $ 10,837 $12,044 ================== =================
12 5. CONTINGENT LIABILITIES: REPURCHASE OBLIGATIONS The Company is contingently liable as of December 31, 1999 under terms of repurchase agreements with various financial institutions which provide for the repurchase of its homes sold to dealers under floor plan financing arrangements upon dealer default. The Company's exposure to loss under such agreements is reduced by the resale of the repurchased home. The Company has provided for losses on homes as of December 31, 1999 for which it has received or expects notification of repurchase. The Company believes any additional losses incurred under outstanding repurchase agreements in excess of the accrual established as of December 31, 1999, will not have a significant impact on the financial condition of the Company. OTHER CONTINGENCIES Letters of Credit totaling $500,000 have been issued in conjunction with the Company's self-funded workers' compensation program. 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. 6. 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, 1999, 1998 and 1997 was $210,000, $239,000 and $222,000, respectively. 7. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED): The Company's results of operations in 1999 and 1998 by quarter are as follows: (Amounts in Thousands except per share data):
Quarter Ended ------------------------------------------------------------ Year Ended MAR 31 JUN 30 SEP 30 DEC 31 DEC. 31 ------ ------ ------ ------ ------- 1999: Net sales $44,350 $49,133 $47,259 $35,572 $176,314 Gross profit 5,809 7,052 5,675 3,794 22,330 Net Income (loss) 599 1,361 628 (426) 2,162 Net Income (loss) per Class A Share Basic and Fully Diluted .15 .35 .16 (.11) .55 Net Income (loss) per Class B Share Basic and Fully Diluted .15 .35 .16 (.11) .55 1998: Net sales $ 42,886 $ 46,320 $ 48,897 $ 46,817 $184,920 Gross profit 5,340 6,816 6,433 7,113 25,702 Net income 580 1,326 1,062 1,594 4,562 Net Income per Class A Share Basic and Fully Diluted 0.14 0.34 0.27 0.40 1.15 Net Income per Class B Share Basic and Fully Diluted 0.14 0.34 0.27 0.40 1.15
13 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, 1999 and 1998 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, 1999. 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 generally accepted auditing standards. 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, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. Crow , Chizek and Company LLP ---------------------------------- /s/Crowe, Chizek and Company LLP Elkhart, Indiana February 15, 2000 14
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. and Shareholder in the law firm of Hodges & Davis PC, Merrillville, Indiana Michael F. Hussey Vice President - Finance and Assistant Secretary of Liberty Homes, Inc. David M. Huffine President of I.M. Homes, Inc., Rocky Ford, Colorado Mitchell Day President of Day Equipment Corporation, Goshen, Indiana OFFICERS Edward J. Hussey, President Edward Joseph Hussey, Vice President and Secretary Michael F. Hussey, Vice President - Finance and Assistant Secretary Marc A. Dosmann, Vice President and Chief Financial Officer Bruce A. McMillan, Vice President - Sales Ron Atkins, Vice President - Purchasing Nader Tomasbi, Vice President - Engineering and Design Ralph D. Ray, Treasurer Brian L. Christner, Controller Dorothy L. Peterson, Assistant Treasurer REGISTRAR & TRANSFER AGENT Harris Bank, Shareholder Services Chicago, Illinois (312) 461-3309 AUDITORS Crowe, Chizek and Company LLP Elkhart, Indiana LEGAL COUNSEL Hodges & Davis PC Merrillville, Indiana Barnes & Thornburg Fort Wayne, Indiana 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.
15 EX-21 3 EXHIBIT 21 Exhibit 21 LIST OF SUBSIDIARIES Waverlee Homes, Inc., incorporated in Alabama Irish Homes, Inc., incorporated in Indiana Gipper Development Company, LLC, organized in Indiana Statesville Housing Center, Inc., incorporated in North Carolina EX-27 4 EXHIBIT 27
5 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 17,090 0 10,248 0 15,327 47,608 50,909 23,429 75,088 15,805 0 0 0 3,904 51,618 75,088 176,314 176,314 153,984 19,204 0 0 0 4,265 1,750 2,162 0 0 0 2,162 .55 .55
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