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. 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 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, 15 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.
The Company sells its products to numerous independent dealers, most of whom also sell competing products. In the year ended December 31, 1997, 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 $29,000 to $50,000 and from approximately $25,000 to $80,000 for multi-sections. The Company's homes generally fall within the lower price range of the industry.
Manufactured homes were sold by the Company during 1997 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 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 1997, there were 89 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 product, is 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 parks 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.
During 1997, the Company formed Gipper Development Company, LLC, a majority owned entity, which is developing a manufactured housing community in Northern Indiana. The 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.
In 1988, the Company's wholly-owned subsidiary, Irish Homes, Inc., commenced operations 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.
The Company's ability to sell to its dealers is dependent to a considerable degree upon the availability and terms of financing both to its dealers and to the retail customers of its dealers. 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 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 were not significant for 1997,
1996 and 1995.
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 slightly higher than that imposed for conventional home mortgage financing.
In 1990, the Company formed a wholly-owned subsidiary, Arcadian Financial Services, Inc., to operate as a mortgage loan broker. After six years of operation, the Company decided to close Arcadian during 1996. All mortgages written during the period of operation have been sold to secondary financial markets, servicing released.
EMPLOYEES
As of March 13, 1998, the Company had approximately 1,300 full-time employees.
ITEM 2.
ITEM 2. PROPERTIES.
LOCATION
Goshen, Indiana Sheridan, Oregon Syracuse, Indiana Ocala, Florida Yoder, Kansas Statesville, North Carolina Dorchester, Wisconsin Hamilton, Alabama Plant #1 Tuscumbia, Alabama Plant #2 Leola, Pennsylvania
All of the Company's facilities are manufacturing facilities, except for the Goshen, Indiana location which is the Company's executive office and engineering and design center.
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 currently in production are utilized during one shift per day.
ITEM 3.
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.
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, 1997.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's 1997 Annual Report to Shareholders is an exhibit of this filing. The information under the caption "Capital Stock" of the report is incorporated by reference as Item 5 of this filing.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The Company's 1997 Annual Report to Shareholders is an exhibit of this filing. The information under the caption "Selected Financial Data" of the report is incorporated by reference as Item 6 of this filing.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The Company's 1997 Annual Report to Stockholders is an exhibit of this filing. The information contained in this report under the title Management's Discussion and Analysis of Financial Condition and Results of Operations is incorporated by reference as Item 7 of this filing.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's 1997 Annual Report to Stockholders is an exhibit of this filing. The information contained in the 1997, 1996 and 1995 consolidated financial statements and footnotes thereto, together with the report thereon of Crowe Chizek and Company LLP dated February 9, 1998, is incorporated by reference as Item 8 of this filing.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Edward J. Hussey, age 80, 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 50, 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 41, 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 49, 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 42, has been a Director since 1995. He has also been President of Day Equipment Corporation, Goshen, Indiana since 1984.
Ralph D. Ray, age 65, has been employed in various management positions with the Company for 29 years. He has been Treasurer of the Company since 1984.
Dorothy L. Peterson, age 86, has been employed with the Company since 1952. She was appointed Assistant Treasurer in 1985.
Marc A. Dosmann, age 45, 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 46, has served the Company in various capacities for 24 years. He was appointed to the position of Vice President of Sales in 1994.
Ronald Atkins, age 47, has served the Company in manufacturing and purchasing functions since 1981. During 1996, he was appointed to the
position of Vice President of Purchasing.
Brian L. Christner, age 38, joined the Company in December 1994 as Controller. Previously he was Controller at Life Treatment Centers, Inc.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The Company's Proxy Statement for the Annual Meeting of Shareholders to be held on April 23, 1998 includes information under the caption "Executive Compensation (SUMMARY COMPENSATION TABLE) and under the caption "Shareholder Return Performance" (PERFORMANCE GRAPHS). Those sections are exhibits of this filing and are incorporated by reference as Item 11 of this filing.
ITEM 12.
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 23, 1998 includes information regarding SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. This section is an exhibit of this filing and is incorporated by reference as Item 12 of this filing.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In 1997, The Company sold its product to I.M. Homes, Inc., Rocky Ford, Colorado. I.M. Homes is owned by David M. Huffine, a director of the Company. Sales by the Company to I.M. Homes were arms length transactions and represent less than one percent of the Company's sales.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)3. EXHIBITS
The exhibits filed with this Form 10-K are listed in the exhibit
index located on page 17.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the three months ended December 31, 1997.
SIGNATURES
Pursuant to 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 26, 1998 By: /s/ Marc A. Dosmann ------------------------------------ Marc A. Dosmann Vice President - CFO (Principal Financial and Accounting Officer)
Pursuant to 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 President, Director, Chairman - ----------------------------- of the Board of Directors Edward J. Hussey (Principal Executive Officer) March 26, 1998
/s/ Edward Joseph Hussey Director, Vice President, - ----------------------------- Secretary & Assistant Treasurer Edward Joseph Hussey March 26, 1998
/s/ Michael F. Hussey Director and Vice President - Finance - ----------------------------- March 26, 1998 Michael F. Hussey
EXHIBIT INDEX
* Incorporated by reference