UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| [X] | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
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| For the quarterly period ended June 28, 2002 or | ||
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| [ ] | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
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| For the transition period from _____________ to _____________ |
Commission File Number: 0-21204
SOUTHERN ENERGY HOMES, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 63-1083246 | |
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| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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| 144 Corporate Way, P.O. Box 390, Addison, Alabama | 35540 | |
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| (Address of principal executive offices) | (Zip Code) |
(256) 747-8589
(Registrant’s telephone number, including area code)
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 the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
12,133,865 shares of Common Stock,
$.0001 par value, as of August 9, 2002
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
INDEX
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| PART I | FINANCIAL INFORMATION: | |||
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| Item 1 | Financial Statements (Unaudited) | |||
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| Consolidated Condensed Balance Sheets, June 28, 2002 and December 28, 2001 | 3 | |||
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| Consolidated Condensed Statements of Operations – Thirteen Weeks Ended June 28, 2002 and June 29, 2001 and Twenty-six Weeks Ended June 28, 2002 and June 29, 2001 | 4 | |||
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| Consolidated Condensed Statements of Cash Flows – Twenty-six Weeks Ended June 28, 2002 and June 29, 2001 | 5 | |||
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| Notes to Consolidated Condensed Financial Statements | 6 | |||
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| Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 10 | ||
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| Item 3 | Quantitative and Qualitative Disclosure of Market Risk | 14 | ||
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| PART II | OTHER INFORMATION: | |||
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| Item 1 | Legal Proceedings | 15 | ||
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| Item 4 | Submission of Matters to a Vote of Security Holders | 15 | ||
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| Item 6 | Exhibits and Reports on Form 8-K | 16 | ||
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| SIGNATURES | 17 |
2
I. FINANCIAL INFORMATION
Item 1. Financial Statements
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
| June 28, | December 28, | ||||||||
| 2002 | 2001 | ||||||||
| (Unaudited) | (Note 1) | ||||||||
ASSETS |
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Current Assets: |
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Cash and cash equivalents |
$ | 172,000 | $ | 354,000 | |||||
Accounts receivable (less allowance for doubtful accounts of
$188,000 and $160,000, respectively) |
11,132,000 | 7,089,000 | |||||||
Inventories |
15,528,000 | 19,639,000 | |||||||
Refundable income taxes |
349,000 | 349,000 | |||||||
Prepayments and other |
916,000 | 903,000 | |||||||
| 28,097,000 | 28,334,000 | ||||||||
Property and equipment: |
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Property and equipment, at cost |
33,233,000 | 34,765,000 | |||||||
Less – accumulated depreciation |
(15,479,000 | ) | (15,496,000 | ) | |||||
| 17,754,000 | 19,269,000 | ||||||||
Intangibles and other assets: |
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Installment contracts receivable (less allowance for credit
losses of $1,150,000 ) |
12,325,000 | 13,543,000 | |||||||
Goodwill |
3,305,000 | 3,305,000 | |||||||
Investment in joint ventures |
4,082,000 | 4,908,000 | |||||||
Other assets |
3,032,000 | 3,192,000 | |||||||
| 22,744,000 | 24,948,000 | ||||||||
| $ | 68,595,000 | $ | 72,551,000 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Notes payable |
$ | 6,343,000 | $ | 10,964,000 | |||||
Accounts payable |
2,360,000 | 1,369,000 | |||||||
Accrued liabilities |
13,834,000 | 13,617,000 | |||||||
| 22,537,000 | 25,950,000 | ||||||||
Stockholders’ equity: |
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Preferred stock, $.0001 par value, 1,000,000 shares authorized,
none outstanding |
— | — | |||||||
Common stock, $.0001 par value, 40,000,000 shares authorized,
12,133,865 issued and outstanding at June 28, 2002 and at
December 28, 2001 |
1,000 | 1,000 | |||||||
Capital in excess of par |
8,330,000 | 8,330,000 | |||||||
Retained earnings |
37,727,000 | 38,270,000 | |||||||
| 46,058,000 | 46,601,000 | ||||||||
| $ | 68,595,000 | $ | 72,551,000 | ||||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
3
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||||||
| June 28, | June 29, | June 28, | June 29, | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||||
| (Restated – see | (Restated – see | |||||||||||||||||||
| note 2) | note 2) | |||||||||||||||||||
Net revenues |
$ | 43,701,000 | $ | 40,033,000 | $ | 78,394,000 | $ | 74,567,000 | ||||||||||||
Cost of sales |
34,578,000 | 30,757,000 | 62,209,000 | 57,659,000 | ||||||||||||||||
Gross profit |
9,123,000 | 9,276,000 | 16,185,000 | 16,908,000 | ||||||||||||||||
Operating expenses: |
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Selling, general and administrative |
7,996,000 | 8,359,000 | 15,326,000 | 16,820,000 | ||||||||||||||||
Amortization of intangibles |
13,000 | 76,000 | 26,000 | 153,000 | ||||||||||||||||
| 8,009,000 | 8,435,000 | 15,352,000 | 16,973,000 | |||||||||||||||||
Operating income (loss) from
continuing operations |
1,114,000 | 841,000 | 833,000 | (65,000 | ) | |||||||||||||||
Interest expense |
(270,000 | ) | (501,000 | ) | (595,000 | ) | (1,170,000 | ) | ||||||||||||
Interest income |
41,000 | 56,000 | 125,000 | 215,000 | ||||||||||||||||
Income (loss) from continuing
operations before income taxes |
885,000 | 396,000 | 363,000 | (1,020,000 | ) | |||||||||||||||
Income taxes |
— | — | — | — | ||||||||||||||||
Income (loss) from continuing
operations |
885,000 | 396,000 | 363,000 | (1,020,000 | ) | |||||||||||||||
Loss from discontinued operations
(Note 2) |
(630,000 | ) | (271,000 | ) | (906,000 | ) | (317,000 | ) | ||||||||||||
Net income (loss) |
$ | 255,000 | $ | 125,000 | $ | (543,000 | ) | $ | (1,337,000 | ) | ||||||||||
Basic and diluted earnings per share: |
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Income (loss) from continuing
operations |
$ | 0.07 | $ | 0.03 | $ | 0.03 | $ | (0.08 | ) | |||||||||||
Loss from discontinued operations |
(0.05 | ) | (0.02 | ) | (0.07 | ) | (0.03 | ) | ||||||||||||
Net income (loss) |
$ | 0.02 | $ | 0.01 | $ | (0.04 | ) | $ | (0.11 | ) | ||||||||||
Weighted average number of common
shares: |
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Basic |
12,133,865 | 12,132,990 | 12,133,865 | 12,132,990 | ||||||||||||||||
Diluted |
12,413,911 | 12,343,542 | 12,437,129 | 12,229,682 | ||||||||||||||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
4
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| Twenty-six Weeks Ended | ||||||||||||
| June 28, | June 29, | |||||||||||
| 2002 | 2001 | |||||||||||
Cash flows from operating activities: |
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Net loss |
$ | (543,000 | ) | $ | (1,337,000 | ) | ||||||
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities: |
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Equity (income) loss of joint ventures |
(230,000 | ) | (70,000 | ) | ||||||||
Distribution from joint ventures |
185,000 | 371,000 | ||||||||||
Depreciation of property and equipment |
1,245,000 | 1,214,000 | ||||||||||
Amortization of intangibles |
26,000 | 152,000 | ||||||||||
Loss on sale of property and equipment |
94,000 | — | ||||||||||
Amortization of debt issuance costs |
134,000 | 121,000 | ||||||||||
Provision for doubtful accounts receivable |
28,000 | 18,000 | ||||||||||
Origination of installment contracts |
(2,170,000 | ) | (1,187,000 | ) | ||||||||
Provision for credit losses on installment contracts |
— | 150,000 | ||||||||||
Principal collected on originated installment contracts |
3,388,000 | 1,330,000 | ||||||||||
Change in assets and liabilities: |
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Inventories |
4,111,000 | 2,355,000 | ||||||||||
Accounts receivable |
(4,071,000 | ) | (6,679,000 | ) | ||||||||
Refundable income taxes, prepayments and other |
(13,000 | ) | 4,697,000 | |||||||||
Other assets |
— | 1,019,000 | ||||||||||
Accounts payable |
991,000 | 2,385,000 | ||||||||||
Accrued liabilities |
217,000 | 1,573,000 | ||||||||||
Net cash provided by operating activities |
3,392,000 | 6,112,000 | ||||||||||
Cash flows from investing activities: |
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Capital expenditures |
(176,000 | ) | (264,000 | ) | ||||||||
Investments in joint ventures |
(379,000 | ) | (15,000 | ) | ||||||||
Proceeds from sale of joint venture |
1,250,000 | |||||||||||
Proceeds from sale of property and equipment |
352,000 | 366,000 | ||||||||||
Net cash provided by investing activities |
1,047,000 | 87,000 | ||||||||||
Cash flows from financing activities: |
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Net borrowings (repayments) on notes payable |
(4,621,000 | ) | (11,147,000 | ) | ||||||||
Payment of debt issuance costs |
— | (1,106,000 | ) | |||||||||
Net cash used in financing activities |
(4,621,000 | ) | (12,253,000 | ) | ||||||||
Net decrease in cash and cash equivalents |
(182,000 | ) | (6,054,000 | ) | ||||||||
Cash and cash equivalents at the beginning of period |
354,000 | 6,054,000 | ||||||||||
Cash and cash equivalents at the end of period |
$ | 172,000 | $ | — | ||||||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
5
SOUTHERN ENERGY HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The consolidated condensed balance sheet as of December 28, 2001, which has been derived from audited financial statements, and the unaudited interim consolidated condensed financial statements as of March 29, 2002, have been prepared by the Company without audit, but in the opinion of management reflect the adjustments necessary (which include only normal recurring adjustments) for the fair presentation of the information set forth therein. Results of operations for the interim 2002 period are not necessarily indicative of results expected for the full year. While certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, the Company believes that the disclosures herein are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report to Stockholders for the fiscal year ended December 28, 2001.
2. DISCONTINUED OPERATIONS:
In the second quarter of 2002, the Company decided to close three retail centers, which were part of the Retail Segment. These retail centers had been negatively affected by weak market conditions and restrictive retail financing conditions, principally as a result of the withdrawal of several lenders from the market. The decision to close the retail centers was based primarily on management’s evaluation of recent operating results.
Accordingly, as required by FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the operating results of the closed retail centers, which were previously reported in the Retail Segment data, for 2002 and all prior periods presented herein have been classified in discontinued operations. The Company recognized a $630,000 loss on discontinued operations in the second quarter, which included provisions for exit costs related to ongoing rental commitments and write-down of related leasehold improvements of $286,000. As required by FASB 144, any further operating losses, as well as adjustments to exit costs accruals (if any), will be reported in discontinued operations as incurred, or when circumstances warrant revisions of the related accounts. Historical operating results of the discontinued operations were as follows:
| Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||
| June 28, 2002 | June 29, 2001 | June 28, 2002 | June 29, 2001 | |||||||||||||
| (In Thousands) | ||||||||||||||||
Net sales |
$ | 543 | $ | 2,415 | $ | 1,473 | $ | 5,382 | ||||||||
Net income (loss) |
(630 | ) | (271 | ) | (906 | ) | (317 | ) | ||||||||
Total exit costs accruals at June 28, 2002 amounted to $90,000, which are expected to be paid by the end of 2002. There are no other significant assets or liabilities remaining on the balance sheet at June 28, 2002 related to the three retail centers, all of which ceased operations in the second quarter.
There are no material contingent liabilities, including environmental liabilities or litigation, related to the closed retail centers.
3. INVENTORIES:
Inventories are valued at first-in, first-out (“FIFO”) cost, which is not in excess of market. An analysis of inventories follows:
| June 28, | December 28, | |||||||
| 2002 | 2001 | |||||||
| (Unaudited) | ||||||||
Raw materials |
$ | 3,905,000 | $ | 4,657,000 | ||||
Work in progress |
642,000 | 592,000 | ||||||
Finished goods |
10,981,000 | 14,390,000 | ||||||
| $ | 15,528,000 | $ | 19,639,000 | |||||
6
4. EARNINGS PER SHARE:
Basic earnings per share (“EPS”) excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of shares outstanding during the subject period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock are exercised or converted into common stock or result in the issuance of common stock that will share in the earnings of the Company.
The following reconciliation details the numerators and denominators used to calculate basic and diluted earnings per share for the respective periods:
| Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||
| June 28, 2002 | June 29, 2001 | June 28, 2002 | June 29, 2001 | |||||||||||||
Net income (loss) |
$ | 255,000 | $ | 125,000 | $ | (543,000 | ) | $ | (1,337,000 | ) | ||||||
Average shares outstanding: |
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Basic |
12,133,865 | 12,132,990 | 12,133,865 | 12,132,990 | ||||||||||||
Add: dilutive effect of
options issued |
280,046 | 210,552 | 303,264 | 96,692 | ||||||||||||
Diluted |
12,413,911 | 12,343,542 | 12,437,129 | 12,229,682 | ||||||||||||
Net income (loss) per
common share: |
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Basic |
$ | 0.02 | $ | 0.01 | ||||||||||||