legh_Current_Folio_10K

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from   _________   to   ________

Commission file number 001‑38761

Legacy Housing Corporation

(Exact Name of Registrant as Specified in its Charter)

Texas

    

20‑2897516

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

 

 

1600 Airport Freeway, #100

Bedford, Texas

 

76022

 

 

 

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code (817)‑799‑4900

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Common Stock ($0.001 par value)

 

LEGH

 

NASDAQ Global Market

 

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No 

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  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

Large accelerated filer ☐

    

Accelerated filer ☐

    

Non-accelerated filer 

 

    

Smaller reporting company  

    

Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No

The aggregate market value of the registrant’s common equity held by non-affiliates as of June 30, 2019 (the last business day of the registrant’s most recently completed second fiscal quarter) was $67,725,024; 5,439,761 shares of common stock were held by non-affiliates. For purposes of the foregoing calculation only, all directors and the executive officers who were SEC reporting persons of the Registrant as of June 30, 2019 have been deemed affiliates.

As of March 27, 2020, the total number of shares outstanding of the registrant’s  common stock was 24,762,462 shares.

Documents Incorporated by Reference: None

 

 

 

 

Table of Contents

TABLE OF CONTENTS

 

    

Page

PART I 

 

 

 

Item 1. Business 

 

2

 

 

 

Item 1A. Risk Factors 

 

17

 

 

 

Item 1B. Unresolved Staff Comments 

 

17

 

 

 

Item 2. Properties 

 

18

 

 

 

Item 3. Legal Proceedings 

 

19

 

 

 

Item 4. Mine Safety Disclosures 

 

19

 

 

 

PART II 

 

 

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 

 

20

 

 

 

Item 6. Selected Financial Data 

 

20

 

 

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

 

21

 

 

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 

 

30

 

 

 

Item 8. Financial Statements and Supplementary Data 

 

31

 

 

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 

 

59

 

 

 

Item 9A. Controls and Procedures 

 

59

 

 

 

Item 9B. Other Information 

 

60

 

 

 

PART III 

 

 

 

Item 10. Directors, Executive Officers and Corporate Governance 

 

61

 

 

 

Item 11. Executive Compensation 

 

66

 

 

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 

 

70

 

 

 

Item 13. Certain Relationships and Related Transactions, and Director Independence 

 

71

 

 

 

Item 14. Principal Accounting Fees and Services 

 

72

 

 

 

PART IV 

 

 

 

Item 15. Exhibits and Financial Statement Schedules 

 

74

 

 

 

 

 

 

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PART I

ITEM 1.      BUSINESS.

Forward-Looking Statements

This Annual Report on Form 10-K (this “Form 10-K”) contains forward-looking statements. Forward-looking statements are predictions based on expectations and projections about future events, and are not statements of historical fact. Forward-looking statements include statements concerning business strategy, among other things, including anticipated trends and developments in and management plans for our business and the markets in which we operate. In some cases, you can identify these statements by forward-looking words, such as “estimate,” “expect,” “anticipate,” “project,” “plan,” “intend,” “believe,” “forecast,” “foresee,” “likely,” “may,” “should,” “goal,” “target,” “might,” “will,” "would," "can,"  “could,” “predict,” and “continue,” the negative or plural of these words and other comparable terminology. All forward-looking statements included in this Form 10-K are based upon information available to us as of the filing date of this Form 10-K, and we undertake no obligation to update any of these forward-looking statements for any reason. You should not place undue reliance on forward-looking statements. The forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these statements. These factors include the matters discussed under “Risk Factors” in our Registration Statement on Form S-1 and those described elsewhere in this Form 10-K and from time to time in future reports that we file with the Securities and Exchange Commission. You should carefully consider the risks and uncertainties described in this Form 10-K.

In this Form 10-K, unless otherwise indicated or the context otherwise requires, “Legacy,” “the Company,” “we,” “us” or “our” refers to Legacy Housing Corporation, a Texas corporation.

Our Company

We build, sell and finance manufactured homes and “tiny houses” that are distributed through a network of independent retailers and company‑owned stores and also sold directly to manufactured home communities. The company was founded in 2005 as a Texas limited partnership named Legacy Housing, Ltd. Effective January 1, 2018, we converted into a Delaware corporation and changed our name to Legacy Housing Corporation. Effective December 31, 2019, we converted from a Delaware corporation to a Texas corporation. Our corporate office is located in Bedford, Texas (between Dallas and Fort Worth). We completed our initial public offering (the “IPO”) in December 2018 and our common stock trades on The NASDAQ Global Market under the symbol “LEGH.” 

We are the fourth largest producer of manufactured homes in the United States as ranked by number of homes manufactured based on information available from the Manufactured Housing Institute and IBTS for 2019. With current operations focused primarily in the southern United States, we offer our customers an array of quality homes ranging in size from approximately 390 to 2,667 square feet consisting of 1 to 5 bedrooms, with 1 to 31/2 bathrooms. Our homes range in price, at retail, from approximately $22,000 to $140,000. During 2019, we sold 3,904 home sections (which are entire modules or single floors) and in 2018 we sold 3,950 home sections. We commenced operations in 2005 and have experienced strong sales growth since our inception. 

Our homes address the significant need in the United States for affordable housing. This need for affordable housing is being driven by a nationwide trend of increasing rental rates for housing, higher prices for site‑built homes and decreasing percentages of home ownership among portions of the U.S. population. Our customers typically have annual household incomes of less than $60,000 and include young and working class families, as well as persons age 55 and older. In 2018, there were approximately 58,160,000 households in the United States with annual household incomes of less than $60,000, representing nearly half of all U.S. households, according to the Current Population Survey published by the U.S. Census Bureau.

We believe our company is one of the most vertically integrated in the manufactured housing industry, allowing us to offer a complete solution to our customers, from manufacturing custom‑made homes using quality materials and distributing those homes through our expansive network of independent retailers and company‑owned distribution locations, to providing tailored financing solutions for our customers. Our homes are constructed in the United States at

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one of our three manufacturing facilities in accordance with the construction and safety standards of the U.S. Department of Housing and Urban Development (“HUD”). Our factories employ high‑volume production techniques that allow us to produce approximately 75 home sections, or approximately 62 fully‑completed homes on average depending on product mix, in total per week. We use quality materials and operate our own component manufacturing facilities for many of the items used in the construction of our homes. Each home can be configured according to a variety of floor plans and equipped with such features as fireplaces, central air conditioning and state‑of‑the‑art kitchens.

Our homes are marketed under our premier “Legacy” brand name and, as of December 31, 2019, are sold  to consumers, primarily across 15 states through a network of 90 independent retail locations, 13 company‑owned retail locations and through direct sales to owners of manufactured home communities. Our 13 company‑owned retail locations, including 11 Heritage Housing stores and two Tiny House Outlet stores, exclusively sell our homes. During 2019, approximately 48%  of our manufactured homes were sold in Texas, followed by 8% in Georgia, 6% in Kansas, 5% in Florida and 5% in Oklahoma. During 2018,  approximately 56% of our manufactured homes were sold in Texas, followed by 13% in Georgia, 11% in Louisiana and 4% in Oklahoma. We plan to deepen our distribution channel by using cash from operations and borrowings from our lines of credit to expand our company‑owned retail locations in new and existing markets

We offer three types of financing solutions to our customers. We provide floor plan financing for our independent retailers, which takes the form of a consignment arrangement between the retailer and us. We also provide consumer financing for our products which are sold to end‑users through both independent and company‑owned retail locations, and we provide financing solutions to manufactured housing community owners that buy our products for use in their housing communities. Our ability to offer competitive financing options at our retail locations provides us with several competitive advantages and allows us to capture sales which may not have otherwise occurred without our ability to offer consumer financing.

Corporate Conversion

Prior to January 1, 2018, we were a Texas limited partnership named Legacy Housing, Ltd. Effective January 1, 2018, we converted into a Delaware corporation pursuant to a statutory conversion, or the Corporate Conversion, and changed our name to Legacy Housing Corporation. All of our outstanding partnership interests were converted on a proportional basis into shares of common stock of Legacy Housing Corporation. The conversion qualified as a tax free transaction under Section 351 of the Internal Revenue Code.

Following the Corporate Conversion, Legacy Housing Corporation continues to hold all of the property and assets of Legacy Housing, Ltd. and all of the debts and obligations of Legacy Housing, Ltd. continue as the debts and obligations of Legacy Housing Corporation. The purpose of the Corporate Conversion was to reorganize our corporate structure so that the top‑tier entity in our corporate structure, the entity that offered common stock to the public in the IPO,  was a corporation rather than a limited partnership. Except as otherwise noted, the financial statements included in this Form 10-K are those of Legacy Housing Corporation.

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Our Market Opportunity

Manufactured housing is a competitive alternative to other forms of affordable housing, whether new or existing, or located in urban, suburban or rural areas. We believe the target universe of manufactured home buyers consists of households with total annual income below $60,000 which comprised nearly half of total U.S. households in 2018. We believe our target U.S. age groups consist of young families between the ages of 20‑39 and persons age 50 and older. These age groups have grown significantly since 2007. The comparatively low all‑in cost of fully‑equipped manufactured housing is attractive to our target consumers. The chart below highlights the increasing all‑in average sales price per square foot difference between a new manufactured home and a new site‑built home (excluding land).

Average Price per Square Foot Comparison

Picture 6


Source:  U.S. Census Bureau, the Institute for Building Technology and Safety, and the Manufactured Housing Institute.

Population Growth from 2007 to 2017

Picture 5


Source:  U.S. Census Bureau.

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Manufactured homes are an attractive alternative for consumers as new single‑family home prices continue to rise at a rapid rate. As shown in the chart below, the average sale price for new single‑family homes (including the land on which they were built) increased approximately 42% since 2009 while the annual average sale price of manufactured homes increased 14% during that time period.

Average Sale Price Comparison

Picture 4


Source:  U.S. Census Bureau, the Institute for Building Technology and Safety, and the Manufactured Housing Institute.

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Additionally, innovative engineering and design, as well as efficient production techniques, including the advent and development of the “tiny house” market, continue to position manufactured homes as a viable housing alternative. Demand for high‑quality affordable housing below $150,000 has also been driven by increasing rental rates for housing, higher prices for site‑built homes, decreasing percentages of home ownership among portions of the U.S. population and stagnant U.S. wage growth.

Percentage of New Houses Sold Under $150,000

Picture 3


Source:  U.S. Census Bureau.

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In 2017, the manufactured housing industry shipped 92,891 manufactured homes according to data published by the U.S. Census Bureau, the Institute for Building Technology and Safety (“IBTS”) and the Manufactured Housing Institute (“MHI”). Total annualized manufactured home shipments in 2018 increased to approximately 96,500. In 2019, according to MHI and the Census Bureau, manufactured housing shipments were approximately 94,600, which remains well below the average annual shipments totaling approximately 350,000 between 1994 and 1999.

Manufactured Home Shipments vs. Total Completed Housing

Picture 2


Source:  U.S. Census Bureau, the Institute for Building Technology and Safety, and the Manufactured Housing Institute.

Our Competitive Advantages

We offer a complete solution for affordable manufactured housing. We believe that we differentiate ourselves from our competition and have been able to grow our business as a result of the following key competitive strengths:

·

Quality and Variety of Housing Designs.  Based on more than 60 combined years of industry experience, our co‑founders have developed an operating model that enables the efficient production of quality, customizable manufactured homes. All of our homes are constructed in one of our three U.S.‑based manufacturing facilities. By utilizing an assembly‑line process that employs from approximately 150 to 275 individuals per facility, we are able to manufacture a home in approximately three to six days and, are on average producing approximately 75 home sections, or 62 fully‑completed homes depending on product mix, in total per week. We utilize local market research to design homes that meet the specific needs of our customers and offer a variety of structural and decorative customization options, including, among others, fireplaces, central air conditioning, overhead heat ducts, stipple‑textured ceilings, decorative woodgrain vinyl floors, wood cabinetry and energy conservation elements. Additionally, our homes have vaulted ceilings in every room, have numerous proprietary advantages such as our copyrighted “furniture friendly” floor plans and, in most cases, are wider, have taller ceilings and a steeper roof pitch than our competitors’ products. Taken together, we believe our ability to offer our customers a range of home sizes and styles, as well as sophisticated design and customization, allows us to accommodate virtually all reasonable customer requests. Our vertical integration allows us the ability to respond quickly to our customers’ needs and modify designs during the construction process.

·

Manufacturing Facilities Strategically Located Near Customers in Key Markets. Our three manufacturing facilities are strategically located to allow us to serve our 90 independent and 13 company‑owned retail locations primarily across 15 states. Currently, we have a manufacturing plant in Fort Worth, Texas that measures 97,000 square feet in size and produced 1,297 homes in 2019 and 1,133 

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homes in 2018, a manufacturing plant in Commerce, Texas that measures 130,000 square feet in size and produced 713 homes in 2019 and 987 homes in 2018, and a manufacturing plant in Eatonton, Georgia that measures 388,000 square feet in size and produced 1,016 homes in 2019 and 1,000 homes in 2018. Once our homes are constructed and equipped at our facilities, we have the ability to transport the finished products directly to customers ensuring timely and efficient delivery of our manufactured homes. We currently have approximately 54 company‑owned trucks, which transported approximately 72% of our production during 2019 to manufactured home communities, our company-owned retail locations and independent dealers.

·

Expansive and Growing Distribution Network.  We distribute our products primarily in the southern United States through a network of independent retail locations, company‑owned retail locations and direct sales to owners of manufactured home communities. Our first company‑owned retail location opened in June 2016. Increasing the mix of company‑owned locations allows us to improve the customer experience through all the steps of the buying process, from manufacturing and design to sales, financing and customer service. We believe our company‑owned stores will, on average, carry higher gross margins.

·

Competitive Production Strategies and Direct Sourcing.  We develop and maintain the resources necessary to build custom homes efficiently that incorporate unique and varied customer‑requested features. We are constantly seeking ways in which to directly source materials to be used in the manufacturing process, which allows us to ensure the materials are of high‑quality and can be customized to meet our customers’ needs. Customization enables us to attract additional retailers and consumers who seek individualized homes that are assembled on a factory production line. When these custom homes are sold through company‑owned retail stores, we expect to capture higher gross margins.

·

Available Financing for our Customers.  Our financial position allows us to develop and offer financing solutions to our customers in connection with their purchase of our homes. We offer three types of financing solutions to our customers. We provide floor plan financing for our independent retailers, which takes the form of a consignment arrangement between the retailer and us. We also provide consumer financing for our products sold to end‑users through both independent and our company‑owned retail locations, and we provide financing to community owners that buy our products for use in their rental housing communities. Our company has been providing floor plan financing to our independent retailers since our formation and we now have more than 70 independent retailers using our consignment solution. We now have more than 3,000 customers that purchased their homes utilizing our retail financing solutions. The average interest rates of our retail financing loans were approximately 14.0% at December 31, 2019 and 2018, respectively. The repossession rates for our retail financing loans, measured by units, was approximately 3.1% and 2.3% for 2019 and 2018, respectively.

·

Support for Owners of Manufactured Home Communities.  We provide manufacturing and financing solutions for owners of manufactured home communities in connection with the development of communities in our geographic market area. Such development projects can vary, but generally include custom park development financing and large purchase orders of manufactured homes. We also make loans to community owners for the purpose of acquiring or developing properties and, as part of the arrangement, these community owners contract to buy homes from us. These loans typically range in term from two to five years and carry interest at 6.25% to 9.5%. For the years ended December 31, 2019 and 2018, we had provided additional loans to owners of manufactured home communities for development purposes with a total amount outstanding of $12,391,000 and $1,077,000, respectively. These financing solutions are structured to give us an attractive return on investment, when coupled with the gross margin we realize on products specifically targeted for these new manufactured housing communities.

·

Strong Alignment of Interests through Co‑Founders’ Ownership.  We believe that a strong alignment of interests with stockholders and investors exists through the ownership of a significant percentage of our outstanding shares by our co-founders, Curtis D. Hodgson (Executive Chairman of the Board) and Kenneth E. Shipley  (President and Chief Executive Officer).  Messrs. Hodgson and Shipley acquired their ownership in 2005 when they founded the company. Each individual has and continues to receive a minimal annual

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salary ($50,000). By providing structural and economic alignment with the performance of our company, Messrs. Hodgson’s and Shipley’s continuing controlling interests are directly aligned with those of our investors. We believe the combination of these characteristics has promoted long‑term planning, an enhanced culture among our customers, strategic partners and employees, and ultimately the creation of value for our investors.

Our Growth Strategy

We have a strong operating history of investing in successful growth initiatives over the past 15 years. We believe that the solution we are able to provide for our customers, as a result of the vertical integration of our company, enhances our brand recognition as a leading producer, results in higher and more efficient utilization of our manufacturing factories and expands our direct‑to‑consumer outreach on the competitive advantages of our wide variety of customizable homes. This operational focus has provided us with sustainable net sales and net income growth over the years. Our growth strategy includes the following key initiatives:

·

Broaden and Deepen Our Retail Presence in Key Geographic Areas.  As of December 31, 2019, we distribute our products primarily across 15 states through a combination of 13 company‑owned retail locations and 90 independent retail locations. We believe that a more robust network of company‑owned retail locations will allow us to be more responsive and improve the customer experience at all stages, from manufacturing and design to sales, financing and customer service. We believe our company‑owned stores will, on average, be more productive than our independent retail locations and carry higher gross margins due to our ability to select critical markets and develop highly‑trained sales representatives who possess a deep understanding of our business and customer needs.

·

Expand Financing Solutions for Our Customers.  We recognize that offering financing solutions to our customers is an important component of being a vertically integrated company that provides affordable manufactured housing. Providing financing improves our responsiveness to the needs of prospective purchasers while also providing us with opportunities for loan origination and servicing revenues, which act as additional drivers of net income for us. During the years ended December 31, 2019 and 2018, we financed approximately 60% and 37% of the homes we sold to consumers, respectively. We intend to expand financing solutions to manufactured housing community‑owner customers, in a manner than includes developing new sites for products in or near urban locations where there is a shortage of sites to place our products.

·

Continue to Focus on Innovation and Customization for Core Customer Groups.  Our production strategy is focused on continually developing the resources necessary to efficiently build homes that incorporate unique, varied and innovative customer preferences. We are constantly seeking ways to directly source materials to be used in the manufacturing process, which allows us to ensure we have quality materials that can be customized to meet our customers’ needs. Our principal focus is on designing and building highly functional and durable products that appeal to families of all sizes.

·

Seek Additional Agreements with Owners of Manufactured Home Communities.  Community housing developments provide us with large, concentrated sales opportunities. These projects vary in size and density but generally include sales of 30 to 300 homes. We believe there are significant growth opportunities to work with our development partners on such projects and view these opportunities as an important driver for both the sale of more homes and for financing bulk purchases of those homes by community owners.

·

Pursue Selective Acquisitions.  We seek to grow through selective acquisitions of existing manufactured home retailers in both existing markets and new markets that exhibit strong and reliable long‑term fundamentals.  We also regularly evaluate opportunities related to our affordable housing business in our geographic markets. In April 2018, we acquired approximately 420 acres of raw land located near Austin, Texas for $4.2 million. In November 2018, we acquired approximately 69 acres of raw land located near Adkins, Texas for $0.8 million. We are in the process of securing the required approvals to develop

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manufactured housing communities on the land. We expect to begin development of the communities in 2020. We will continue to evaluate opportunities to develop, or to provide financing to third party developers of, additional manufactured housing communities in order to provide locations for manufactured homes for our customers.

Our Products

Overview.  We are the fourth largest producer of manufactured homes in the United States as ranked by the number of homes manufactured based on information available from the Manufactured Housing Institute and IBTS for 2019. We produce a wide variety of homes that can be used by our customers in a number of ways. We build a variety of sizes and floor plans of residential homes and tiny houses. We work collaboratively with our partners to meet diverse housing needs, such as residences on privately‑owned land and in manufactured home communities, recreational and vacation properties, such as hunting cabins, and accommodations for workforces in oilfields and other industries.

Manufacturing and Quality Design.  We utilize local market research to design homes that meet the specific requirements of our customers and our homes are designed after extensive field research and consumer feedback. We frequently introduce new floor plans, decor, exterior design, features and accessories to appeal to changing consumer trends and we offer an assortment of customizations to match each customer’s individual tastes. Each home typically contains a living room, dining area, kitchen, 1 to 5 bedrooms and 1 to 31/2 bathrooms, and each home can be customized to include certain features including, among others, fireplaces, central air conditioning, overhead heat ducts, stipple‑textured ceilings, decorative wood grain vinyl floors, wood cabinetry and energy conservation elements.

The manufactured homes we build are constructed in accordance with the construction and safety standards of HUD. Our Texas factories are certified to build homes according to the Texas Industrialized Housing and Buildings law (known as the Texas Modular Code) and our Georgia factory is certified to build homes according to Georgia state construction codes. In addition to traditional manufactured homes, we offer a diverse assortment of tiny houses, which are recreational structures between 320 and 399 square feet in size that are used as temporary dwellings, can be pulled by a pick‑up truck and are generally aesthetically similar to larger homes. Our tiny houses are built in a variety of models and floor plans and typically range from 1 to 3 bedrooms with 1 to 2 bathrooms. Tiny houses do not need to be built to HUD standards.

Manufacturing Process.  Our manufactured homes are entirely constructed and equipped at our three factories. Our homes are constructed using high‑volume production techniques and employ approximately 150 to 275 employees at each facility. Most of our homes are constructed in one or more sections (or floors) on a steel chassis. Each section is assembled in stages beginning with the construction of the chassis, followed by the addition of other constructed and purchased components and ending with a final quality control inspection. The efficiency of the production process and the benefits of constructing homes in a controlled factory environment enable us to produce homes in less time and at a lower cost per‑square‑foot than traditional home building. The finished home is then transported directly to a customer at a retail sales center, work site or manufactured home community. During the years ended December 31, 2019 and 2018, we sold 3,904 and 3,950 home sections, including 138 and 245 tiny houses, respectively.

Manufacturing Facilities.  We currently operate three manufacturing facilities located in Fort Worth, Texas, Commerce, Texas and Eatonton, Georgia, each of which range in size from approximately 97,000 to 388,000 square feet. The production schedules for our manufacturing facilities are based on wholesale orders received from distributors, which fluctuate from week to week. In general, our facilities are structured to operate on one 8‑ to 9‑hour shift per day, five days per week. We currently manufacture a typical home in approximately three to six production days. For the years ended December 31, 2019 and 2018, we produced, on average, approximately 75 home sections per week, or 62 fully‑completed homes.

Raw Materials and Suppliers.  The principal materials used in the production of our manufactured homes include wood, wood products, steel, aluminum, gypsum wallboard, windows, doors, fiberglass insulation, carpet, vinyl, fasteners, plumbing materials, appliances and electrical items. We currently buy these materials from various third‑party manufacturers and distributors. We procure multiple sources of supplies for all key materials in order to mitigate any supply chain risk. We intend to continue seeking greater direct sourcing of materials from original manufacturers. This

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will allow us to save costs, gain greater control over the quality of the materials we use in our products and increase customization to meet our customers’ changing preferences. The inability to obtain any materials used in the production of our homes, whether resulting from material shortages, limitation of supplier facilities or other events affecting production of component parts, may affect our ability to meet or maintain production requirements. We have not previously experienced any material difficulty in obtaining key materials in adequate quantity or quality.

Warranties.  We provide the retail home buyer with a one‑year limited warranty from the date of purchase covering defects in material or workmanship in home structure, plumbing and electrical systems. Our warranty does not extend to installation and setup of the home, which is generally arranged by the retailer. Appliances, carpeting, roofing and similar items are warranted by their original manufacturer for various lengths of time. At this time, we do not provide any warranties with respect to tiny houses.

Distribution

As of December 31, 2019, we distribute our manufactured homes primarily across 15 states through a network of 90 independent retail locations, 13 company‑owned retail locations and direct sales to owners of manufactured home communities. As is common in the industry, our independent distributors typically sell manufactured homes produced by other manufacturers in addition to our manufactured homes. Additionally, some independent retailers operate multiple sales outlets. During the years ended December 31, 2019 and 2018, no independent retailer accounted for 10% or more of our manufacturing sales.

Below is a list of the states in which we sold most of our manufactured homes and the approximate percentage of those sales to our total product sales:

 

 

 

 

 

 

 

    

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% of 2019

 

% of 2018

 

 

 

Total

 

Total

 

Location

 

Net Sales

 

Net Sales

 

Texas

 

48

%  

56

%

Georgia

 

 8

%  

13

%

Kansas

 

 6

%  

*

%

Oklahoma

 

 5

%  

 4

%

Florida

 

 5

%  

 1

%

Louisiana

 

 3

%  

11

%

 

 

 

 

 

 

* - represents less than 1% of Total Net Sales

 

 

 

 

 

 

In 2019 and 2018, we also sold homes in Alabama, Arkansas, Colorado,  Illinois, Indiana, Kentucky, Michigan, Mississippi, Missouri, North Carolina, New Mexico, Ohio, Pennsylvania, South Carolina, Tennessee, Wisconsin and West Virginia. We continually seek to increase our wholesale shipments by growing sales at our existing independent retailers and by finding new independent retailers to sell our homes. We provide comprehensive sales training to retail sales associates and bring them to our manufacturing facilities for product training and to view new product designs as they are developed. These training seminars facilitate the sale of our homes by increasing the skill and knowledge of the retail sales consultants. Additionally, we display our products at trade shows and support our retailers through the distribution of floor plan literature, brochures, decor selection displays and point of sale promotional material, as well as internet‑based marketing assistance. We believe we have the most comprehensive printed catalog of manufactured housing products in the industry.

Our independent retailers generally either pay cash to purchase inventory or finance their inventory needs through our consignment arrangements. Certain of our independent retailers finance a portion of their inventory through wholesale floor plan financing arrangements with third parties. In such cases, we verify the order with the third party, then manufacture the home and ship it to the retailer. Payment is due from the third‑party lender upon shipment of the product to the retailer and, depending on the terms of each arrangement, we may or may not have limited repurchase obligations associated with this inventory. The maximum amount of our contingent obligations under such repurchase

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agreements was approximately $260,000 and $2,186,000 as of December 31, 2019 and 2018, respectively, without reduction for the resale value of the homes.

Approximately 44% of our 2019 product sales were attributable to our independent retail distributors, 11% to our company‑owned retail locations and 45% directly to owners of manufactured housing communities. Approximately 67% of our 2018 product sales were attributable to our independent retail distributors, 9% to our company‑owned retail locations and 24% to direct sales to owners of manufactured housing communities.

In addition to our expansive independent retailer channel, we have attractive growth opportunities to expand our company‑owned locations. As of December 31, 2019, we operate 13 company‑owned retail locations. Our company‑owned locations allow us to improve the customer experience through all steps of the buying process, from manufacturing and design to sales, financing and customer service. This also gives us a direct window into consumer preferences and lending opportunities. We believe that our company‑owned stores will, on average, be more productive than our independent retail locations and carry higher gross margins.

Sales and Marketing

Our corporate marketing efforts focus on increasing our brand awareness and communicating our commitment to quality along with the many other competitive advantages our company offers. Our marketing strategy is to offer several lines of manufactured homes that appeal to a wide range of home buyers, continually elevate awareness of our brand and generate demand for our products. We rely on a number of channels in this area, including digital advertising, email marketing, social media and affiliate marketing, as well as through various strategic partnerships. We maintain our website at www.legacyhousingcorp.com.

Our sales and marketing strategy focuses on households with annual incomes of less than $60,000 which includes young families, working class families and persons age 50 and older. We also market to other types of customers, including owners of manufactured home communities, buyers interested in tiny houses, recreational buyers and houses for workforces or man‑camp housing. Additionally, we continue to be well‑positioned to react to any increase in demand for affordable, quickly‑delivered manufactured homes as a result of unforeseen harsh weather conditions and similar events. All of our customers are located in the United States. During the year ended December 31, 2019, one customer accounted for 28% of our net sales and no other customer accounted for more than 10% of our net sales. During the year ended December 31, 2018, no single customer accounted for more than 10% of our net sales.

Financing Solutions for Our Customers

We offer three types of financing solutions:

·

Floor Plan Financing.  We provide floor plan or wholesale financing for our independent retailers, which takes the form of a consignment arrangement between the retailer and us.

·

Consumer Financing.  We provide consumer financing for our products sold to end‑users through both independent and our company‑owned retail locations.

·

Manufactured Housing Community Financing.  We provide financing to community owners that buy our products for use in their rental housing communities.

 

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Overview of Consumer and MHP Financing Options as of December 31,  2019

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

    

Principal

    

 

    

 

    

Average

 

 

Amount

 

Number of

 

Contractual Rate

 

Remaining 

 

 

Outstanding

 

Loans

 

or Monthly Fee

 

Term

Consumer Financing

 

$

109,005

 

3,065

 

14% average contractual rate

 

135 months

MHP Community Financing

 

$

92,621

 

405

 

Typically prime rate + 4.0% with 8% floor

 

78 months

 

We also offer inventory floor plan financing to retailers that takes the form of a consignment arrangement. As of December 31, 2019, we had $18,727,000 of inventory under consignment to our retailers.

Three Types of Financing.  Offering financing solutions to our dealers and customers generally improves our responsiveness to the needs of prospective purchasers while also providing us with opportunities for loan origination and servicing revenues, which acts as an additional driver of net income for us.

Floor Plan Financing.  We provide floor plan or wholesale financing for most of our independent retailers for products we manufacture and for pre‑owned products. This wholesale financing is a consignment from us to our independent retailers. The retailers pay their own freight and pay us a monthly fee ranging from 0.5% to 1.4% per month of the wholesale invoice amount of the home. They are also obligated to pay $1,000 toward the invoice amount each year after the consignment with the first $1,000 reduction due one year following consignment. During 2019, we collected $2,208,000 from the independent retailers. Upon sale, the independent retailer is obligated to pay us the invoice amount, less any prepaid reductions, prior to moving the home away from their retail location. If they provide certain documentation to us, we allow them to move the home to their customer’s location and we notify the customer’s lending source to pay us the amount due upon funding of the loan. We have proprietary technology that we install in many consigned homes that gives us the ability to determine if a consigned home has been moved from the retail location without permission. The independent dealer is free to terminate the consignment agreement by giving us 90‑days’ advance notice if it is current on all its obligations to us. Our wholesale consignment contracts allow us to defer income recognition until we are paid in full. For the years ended December 31, 2019 and 2018, we recorded consignment sales of $42,934,000 and $54,824,000, respectively. Consignment sales are recorded when a house under one of our consignment agreements is sold to the end consumer. 

Certain of our wholesale factory‑built housing sales to independent retailers are purchased through wholesale floor plan financing arrangements. Under a typical floor plan financing arrangement, an independent financial institution specializing in this line of business provides the retailer with a loan for the purchase price of the home and maintains a security interest in the home as collateral. The financial institution customarily requires us, as the manufacturer of the home, to enter into a separate repurchase agreement with the financial institution under which we are obligated, upon default by the retailer and under certain other circumstances, to repurchase the financed home at declining prices over the term of the repurchase agreement (which is typically 24 months). The price at which we may be obligated to repurchase a home under these agreements is based upon the amount financed, plus certain administrative and shipping expenses. Our obligation under these repurchase agreements ceases upon the purchase of the home by the retail customer. The maximum amount of contingent obligations under our repurchase agreements (without reduction for the resale value of the homes) as of December 31, 2019 was $260,000. The risk of loss under these agreements is spread over many retailers and is further reduced by the resale value of the homes. We carry no reserve for this contingent liability.

Consumer Financing.  Sales of factory‑built homes are significantly affected by the availability and cost of consumer financing. There are three basic types of consumer financing in the factory‑built housing industry: (i) chattel or personal property loans, for purchasers of a home without any underlying land involved (generally HUD code homes), (ii) non‑conforming mortgages for purchasers of a home and the land on which the home is placed, and (iii) conforming mortgage loans which comply with the requirements of the Federal Housing Administration (“FHA”), Veterans Affairs or GSE loans. At the present time, we currently offer only chattel loans. As our own network of company‑owned retail

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centers becomes a larger share of our production, we will be able to couple our consumer‑financing solutions with increased levels of anticipated sales from our own centers.

We provide retail consumer financing to consumers who purchase our full‑size manufactured homes and tiny houses and dealer incentive arrangements to encourage independent retailers to use our financing product. Under these arrangements, once a customer executes a home purchase agreement with Legacy financing, we pay to the retailer 80% of the retailer’s gross margin through these consignment arrangements and we retain 20% of the retail gross margins in the consignment portfolio. We transfer the consigned value of the home to the consignment portfolio as our contribution to the consignment arrangement. The retailer is obligated to remarket any repossessions associated with consignment transactions, and obtain 90% of the outstanding balance on the home at the time of repossession. We charge each dealer in the consignment arrangement fees for servicing the loans and receive a preferred return of 10% to 12% per annum for amounts we invest. Upon payback of our contribution, fees and preferred returns, we split the remaining balance with the independent retailer according to a negotiated formula which is accounted for as the dealer incentive liability. As of December 31, 2019, we owned 3,065 retail consumer loans with an average principal balance of $35,600. Our average remaining term on these loans as of December 31, 2019 was 135 months and the average percentage rate (APR) of interest was 14%. Our average loan‑to‑value (“LTV”) at the time of loan origination, which is based on the gross sales price to the borrower, was 83% for the consumer financing portfolio as of December 31, 2019. We have not financed, and have no current plans to finance, new homes manufactured by our competitors in the ordinary course of our business.

All loan applications go through an underwriting process conducted at our corporate headquarters to evaluate credit risk that takes into account numerous factors including the down payment, FICO score, monthly income, and total housing payment coverage of the borrower. The interest rates on approved loans are determined by a buyer’s credit score and down payment amount. We use payment history to monitor the credit quality of the consumer loans on an ongoing basis.

Manufactured Housing Community Financing.  We provide financing to owners of manufactured housing communities for our products that they buy in order to rent to their residents. These loans generally have a ten‑year term and bear interest at the prime rate plus 4%, with a floor and a ceiling. Down payments, delivery expenses and installation expenses are negotiated on a case‑by‑case basis. As of December 31, 2019 and 2018, loans outstanding from manufactured home communities totaled $92,344,000 and $57,935,000, which comprised 405 and 346 loans, respectively. Our average remaining term on these loans as of December 31, 2019 and 2018 was approximately seven years.

We also make loans to community owners for the purpose of acquiring or developing properties and, as part of the arrangement, these community owners contract to buy homes from us. These loans typically range in term from two to five years and carry interest at 6.5% to 12.0%. For the year ended December 31, 2019, we originated loans to owners of manufactured home communities for lot development purposes with a total amount outstanding of $11,412,000.

Competition

The manufactured housing industry is highly competitive at both the manufacturing and retail levels, with competition based upon several factors, including price, product features, reputation for service and quality, depth of distribution, promotion, merchandising and the terms of retail and wholesale consumer financing. We compete with other producers of manufactured homes and new producers continue to enter the market. We also compete with companies offering for sale homes repossessed from wholesalers or consumers and we compete with new and existing site‑built homes, as well as apartments, townhouses and condominiums.

In addition to our company, there are a number of other national manufacturers competing for a significant share of the manufactured housing market in the United States, including Clayton Homes, Inc., Cavco Industries, Inc. and Skyline Champion Corporation. Certain of these competitors possess greater financial, manufacturing, distribution and marketing resources than we do. For the past 15 years, the industry has experienced a trend towards consolidation and, as a result, the bulk of the market share is controlled by a small number of companies. We are the country’s fourth

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largest producer of manufactured homes. Accordingly, we believe we have a significant opportunity to expand in this industry by effectively growing our market share.

Among lenders to manufactured home buyers, there are significant competitors including national, regional and local banks, independent finance companies, mortgage brokers and mortgage banks such as 21st Mortgage Corporation, an affiliate of Clayton Homes, Inc., Berkshire Hathaway, Inc., Triad Finance Corporation and CU Factory Built Lending, LP. Certain of these competitors are larger than us and have access to substantially more capital and cost efficiencies.

Protection of Proprietary Technology

We rely on a combination of copyright and trade secret laws in the United States and other jurisdictions, as well as confidentiality procedures and contractual provisions, to protect our proprietary information, technology and brands. We protect our proprietary information and technology, in part, by requiring certain of our employees to enter into agreements providing for the maintenance of confidentiality and the assignment of rights to inventions made by them while employed by us. We also may enter into non‑disclosure and invention assignment agreements with certain of our technical consultants to protect our confidential and proprietary information and technology. We cannot assure you that our confidentiality agreements with our employees and consultants will not be breached, that we will be able to effectively enforce these agreements, that we will have adequate remedies for any breach of these agreements, or that our trade secrets and other proprietary information and technology will not be disclosed or will otherwise be protected.

Our intellectual property includes copyrights issued by the U.S. Copyright Office for many of our floor plans. We are not currently aware of any claims of infringement or other challenges to our intellectual property rights.

Government Regulation

General.  Our company operates in a regulated industry, and there are many federal, state and local laws, codes and regulations that impact our business. Governmental authorities have the power to enforce compliance with their regulations, and violations may result in the payment of fines, the entry of injunctions or both. Although we believe that our operations are in substantial compliance with the requirements of all applicable laws and regulations, we are unable to predict the ultimate cost of compliance with all applicable laws and enforcement policies.

Federal Manufactured Homes Regulations.  Our manufactured homes are subject to a number of federal, state and local laws, codes and regulations. Construction of manufactured housing is governed by the National Manufactured Housing Construction and Safety Standards Act of 1974, and the regulations issued under such act by HUD. The HUD regulations, known collectively as the Federal Manufactured Home Construction and Safety Standards, cover all aspects of manufactured home construction, including structural integrity, fire safety, wind loads, thermal protection and ventilation. Our Texas manufacturing facilities, and the plans and specifications of the HUD‑compliant homes they produce, have been approved by a HUD‑certified inspection agency. Further, an independent HUD‑certified third‑party inspector regularly reviews our manufactured homes for compliance with HUD regulations during construction. Failure to comply with applicable HUD regulations could expose us to a wide variety of sanctions, including mandated closings of our manufacturing facilities. We believe our manufactured homes are in substantial compliance with all present HUD requirements. Manufactured homes are typically built with wood products that contain formaldehyde resins. HUD regulates the allowable concentrations of formaldehyde in certain products used in manufactured homes and requires manufacturers to warn purchasers as to formaldehyde‑associated risks. The Environmental Protection Agency (“EPA”) and other governmental agencies have in the past evaluated the effects of formaldehyde. We use materials in our manufactured homes that meet HUD standards for formaldehyde emissions and believe we comply with HUD and other applicable government regulations in this regard.

Transportation and Zoning Regulations.  The transportation of manufactured homes on highways is subject to regulation by various federal, state and local authorities. Such regulations may prescribe size and road use limitations and impose lower than normal speed limits and various other requirements. Our manufactured homes (including our tiny houses) are also subject to local zoning and housing regulations. In certain cities and counties in areas where our homes are sold, local governmental ordinances and regulations have been enacted which restrict the placement of manufactured

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homes on privately‑owned land or which require the placement of manufactured homes in manufactured home communities. Such ordinances and regulations may adversely affect our ability to sell homes for installation in communities where they are in effect. A number of states have adopted procedures governing the installation of manufactured homes. Utility connections are subject to state and local regulations which must be complied with by the retailer or other person installing the home.

Warranty Regulations.  Certain warranties we issue may be subject to the Magnuson‑Moss Warranty Federal Trade Commission Improvement Act, which regulates the descriptions of warranties on consumer products. For example, warranties that are subject to the act must be included in a single easy‑to‑read document that is generally made available prior to purchase. The act also prohibits certain attempts to disclaim or modify implied warranties and the use of deceptive or misleading terms. The description and substance of our warranties are also subject to a variety of state laws and regulations. A number of states require manufactured home producers to post bonds to ensure the satisfaction of consumer warranty claims.

Financial Services Regulations.  A variety of laws affect the financing of the homes we manufacture. The Federal Consumer Credit Protection Act and Regulation Z promulgated under that act require written disclosure of information relating to such financing, including the amount of the annual percentage interest rate and the finance charge. The Federal Fair Credit Reporting Act also requires certain disclosures to potential customers concerning credit information used as a basis to deny credit. The Federal Equal Credit Opportunity Act and Regulation B promulgated under that act prohibit discrimination against any credit applicant based on certain specified grounds. The Real Estate Settlement Procedures Act and Regulation X promulgated under that act require certain disclosures regarding the nature and costs of real estate settlements. The Federal Trade Commission has adopted or proposed various Trade Regulation Rules dealing with unfair credit and collection practices and the preservation of consumers’ claims and defenses. Installment sales contracts, direct loans and mortgage loans eligible for inclusion in a Ginnie Mae program are subject to the credit underwriting requirements of the FHA. The American Housing Rescue and Foreclosure Prevention Act provides assistance for the housing industry, including manufactured homes, including, among other things, increased loan limits for chattel (home‑only Title I) loans. Recent FHA guidelines provide Ginnie Mae the ability to securitize manufactured home FHA Title I loans to allow lenders to obtain new capital, which can then be used to fund new loans for our customers. The Secure and Fair Enforcement for Mortgage Licensing Act established requirements for the licensing and registration of all individuals that are Mortgage Loan Originators (“MLOs”). Traditionally, manufactured housing retailers have assisted home buyers with securing financing for the purchase of homes, including negotiating rates and the terms for their loans. Under the act, however, these activities are prohibited unless performed by a registered or licensed MLO. A variety of state laws also regulate the form of financing documents and the allowable deposits, finance charge and fees chargeable pursuant to financing documents. Regulation C of the Home Mortgage Disclosure Act, among other things, requires certain financial institutions, including non‑depository institutions, to collect, record, report and disclose information about their mortgage lending activity, which is used to identify potential discriminatory lending patterns and enforce anti‑discrimination statutes.

The Dodd‑Frank Wall Street Reform and Consumer Protection Act was passed into law and established the Consumer Financial Protection Bureau (“CFPB”) regulates consumer financial products and services. Certain CFPB mortgage finance rules apply to consumer credit transactions secured by a dwelling, including real property mortgages and chattel loans secured by manufactured homes. These rules, among other things, define standards for origination of “Qualified Mortgages,” establish specific requirements for lenders to prove borrowers’ ability to repay, outline conditions under which Qualified Mortgages are subject to safe harbor limitations on liability to borrowers and establish interest rates and other cost parameters for determining which Qualified Mortgages fall under safe harbor protection. While many manufactured homes are financed with agency‑conforming mortgages in which the ability to repay is verified, and interest rates and other costs are within the safe harbor limits, a significant amount of loans to finance the purchase of manufactured homes, particularly chattel loans and non‑conforming land‑home loans, fall outside such safe harbors. Additionally, the CFPB rules, among other things, amended the Truth‑in‑Lending Act and the Real Estate Settlement Procedures Act by expanding the types of mortgage loans that are subject to the protections of the Home Ownership and Equity Protections Act of 1994 (“HOEPA”) and imposing additional restrictions on mortgages that are covered by HOEPA. As a result, certain manufactured home loans are now subject to HOEPA limits on interest rates and fees. Loans with rates or fees in excess of the limits are deemed “High Cost Mortgages” and provide additional protections for borrowers, including with respect to determining the value of the home. Most loans for the purchase of

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manufactured homes have been written at rates and fees that would not appear to be considered High Cost Mortgages under these rules and while some lenders may offer loans that are deemed High Cost Mortgages, the rate and fee limits may deter some lenders from offering such loans to borrowers or be reluctant to enter into loans subject to the provisions of HOEPA. Additionally, certain CFPB rules apply to appraisals on principal residences securing higher‑priced mortgage loans. Certain loans secured by manufactured homes, primarily chattel loans, could be considered higher‑priced mortgage loans. Among other things, the rules require creditors to provide copies of appraisal reports to borrowers prior to loan closing. Compliance with the regulations may constrain lenders’ ability to profitably price certain loans or may cause lenders to incur additional costs to implement new processes, procedures, controls and infrastructure and may cause some lenders to curtail underwriting certain loans altogether. Furthermore, some investors may be reluctant to participate in owning such loans because of the uncertainty of potential litigation and other costs. As a result, some prospective buyers of manufactured homes may be unable to secure necessary financing. Failure to comply with these regulations, changes in these or other regulations, or the imposition of additional regulations, could affect our earnings, limit our access to capital and have a material adverse effect on our business and results of operations.

On May 24, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act (“Dodd‑Frank Reform Act”) was signed into law. The Dodd‑Frank Reform Act revises portions of the Dodd‑Frank Act, reduces the regulatory burden on smaller financial institutions, including eliminating provisions of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“SAFE Act”), and protects consumer access to credit. With the elimination of certain provisions of the SAFE Act, manufactured housing retailers can now assist home buyers with securing financing for the purchase of homes; however, they may not assist in negotiating the financing terms. This will enable buyers to more easily find access to financing and make the overall home buying experience smoother.

On January 25, 2018, HUD announced a top‑to‑bottom review of its manufactured housing rules as part of a broader effort to identify regulations that may be ineffective, overly burdensome, or excessively costly given the critical need for affordable housing. If certain changes are made, our company may be able to more effectively serve buyers of affordable homes.

In 2017, our lead lender required an extensive review of our retail installment contract and associated procedures, which we use as part of our consumer financing solutions strategy. Based on that review, we improved certain elements of the language used in our contracts, and modified certain aspects of our practices. Although we believe there are no material compliance issues with our forms and procedures, we are subject to the federal and other regulations described above.

Seasonality

Generally, we experience higher sales volume during the months of March through October. Our sales are generally slower during the winter months, and shipments can be delayed in certain geographic market areas that we serve which experience harsh weather conditions.

Employees

As of December 31, 2019, we had approximately 800 employees. Of our employees, approximately 700 individuals are hourly employees and approximately 100 individuals are salaried employees. Our employees are currently not represented by any collective bargaining unit. We believe that our relationship with our employees is good.

 

ITEM 1A.    RISK FACTORS.

Not applicable for smaller reporting companies.

 

ITEM 1B.    UNRESOLVED STAFF COMMENTS.

None.

 

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ITEM 2.     PROPERTIES.

Facilities

The following table sets forth certain information with respect to the facilities where our company operates:

 

 

 

 

 

 

 

 

    

Date of

    

 

    

 

 

 

Commencement 

 

Owned /

 

Square

Location

 

of Operations

 

Leased

 

Feet

Manufacturing/Warehouse Facilities

 

  

 

  

 

  

Fort Worth, TX

 

2006

 

Owned

 

96,880

Commerce, TX

 

2008

 

Owned

 

129,600

Eatonton, GA

 

2017

 

Leased

 

388,000

Retail Locations

 

  

 

  

 

  

Acworth, GA

 

2019

 

Leased

 

2,369

Albany, GA

 

2018

 

Leased

 

1,536

Asheboro, NC

 

2018

 

Leased

 

1,472

Athens, GA

 

2017

 

Leased

 

2,016

Augusta, GA

 

2018

 

Leased

 

3,136

Canton, TX

 

2019

 

Leased

 

2,362

Jennings, LA

 

2018

 

Leased

 

2,432

Minden, LA

 

2018

 

Leased

 

2,369

Mobile, AL

 

2018

 

Leased

 

1,700

Mt. Pleasant, TX

 

2017

 

Leased

 

1,792

Greenville, TX

 

2017

 

Owned

 

1,256

Gainesville, TX

 

2018

 

Owned

 

2,240

Oklahoma City, OK

 

2017

 

Owned

 

2,100

Corporate/Regional Headquarters

 

  

 

  

 

  

Bedford, TX

 

2019

 

Leased

 

5,398

Norcross, GA

 

2019

 

Leased

 

3,358

We own the manufacturing facilities and the land on which the facilities are located in Fort Worth, Texas and Commerce, Texas. We believe that these facilities are adequately maintained and suitable for the purposes for which they are used. We currently lease our facility in Eatonton, Georgia from the Putnam Development Authority pursuant to a lease that has been renewed until December 1, 2021. In December 2016, we entered into a payment in lieu of taxes (“PILOT”) arrangement commonly offered in Georgia by local community development programs to encourage industry development. The net effect of the PILOT arrangement is to provide us with incentives through the abatement of local, city and county property taxes and to provide financing for improvements of our Georgia plant (the “Project”). As part of the PILOT arrangement, the Putnam County Development Authority provided us with a credit facility for up to $10 million that can be drawn upon to fund Project improvements and capital expenditures as defined in the credit facility. If funds are drawn, we would pay transaction costs and debt service payments. The credit facility requires interest payments of 6.0% per annum on outstanding balances, which are due each December 1 through maturity on December 1, 2021, at which time all unpaid principal and interest are due. The credit facility is collateralized by the assets of the Project. As of December 31, 2019, we had not drawn down on this credit facility.

We currently operate  13 retail locations. Each retail location sits on approximately five to seven acres of land. We lease 10 of the 13 retail locations we operate in the business, pursuant to leases expiring from 2020 to 2028. Total rent expense for the years ended December 31, 2019 and 2018 was $593,000 and $569,000, respectively.

 

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ITEM 3.     LEGAL PROCEEDINGS.

We are party to certain legal proceedings that have arisen in the ordinary course of our business and are incidental to our business. Certain of the claims pending against us allege, among other things, breach of contract, breach of express and implied warranties, construction defects, deceptive trade practices, product liability and personal injury. Although litigation is inherently uncertain, based on past experience and the information currently available, management does not believe that the currently pending and threatened litigation or claims will have a material adverse effect on our company’s financial position, liquidity or results of operations. However, future events or circumstances, currently unknown to management, will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on our financial position, liquidity or results of operations in any future reporting periods.

 

ITEM 4.     MINE SAFETY DISCLOSURES.

Not applicable.

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PART II

ITEM 5.      MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

Our common stock has traded on The NASDAQ Global Market under the symbol “LEGH” since December 14, 2018, when we completed our IPO. Prior to that date, there was no public market for our common stock. As of March 25, 2020, there were 19 holders of record of our common stock. This does not include persons who hold our common stock in nominee or “street name” accounts through brokers or banks.

Dividends

We did not declare or pay cash dividends during 2019 or 2018. We have no plans to pay any cash dividends on our common stock for the foreseeable future and instead plan to retain earnings, if any, for future operations, to finance the growth of the business and service debt. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions and other factors that our board of directors may deem relevant.

Recent Sales of Unregistered Securities

We did not sell any unregistered equity securities during the period covered by this Form 10-K. 

Issuer Purchases of Equity Securities

On April 12, 2019 our Board of Directors approved a stock repurchase program. Under the repurchase program, the Company may purchase up to $10,000,000 of its common stock, share purchases may be made from time to time in the open market or through privately negotiated transactions depending on market conditions, share price, trading volume and other factors.  Such purchases, if any, will be made in accordance with applicable insider trading and other securities laws and regulations.  These repurchases may be commenced or suspended at any time or from time to time without prior notice. 

On April 17, 2019, pursuant to the repurchase program, we acquired 300,000 shares of our common stock at an average price of $10.20 per share. As of December 31, 2019, the approximate dollar value of share that may yet be purchased under this program is $6,940,000.

ITEM 6.      SELECTED FINANCIAL DATA.

Not applicable for smaller reporting companies.

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ITEM 7.      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion should be read in conjunction with the financial statements and accompanying notes and the information contained in other sections of this Form 10-K. It contains forward‑looking statements that involve risks and uncertainties, and is based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those anticipated by our management in these forward‑looking statements as a result of various factors, including those discussed in this Form 10-K and in our Registration Statement on Form S-1, particularly under the heading “Risk Factors.”

Overview

Legacy Housing Corporation builds, sells and finances manufactured homes and “tiny houses” that are distributed through a network of independent retailers and company‑owned stores and are sold directly to manufactured housing communities. We are the fourth largest producer of manufactured homes in the United States as ranked by number of homes manufactured based on information available from the Manufactured Housing Institute and IBTS for 2019. With current operations focused primarily in the southern United States, we offer our customers an array of quality homes ranging in size from approximately 390 to 2,667 square feet consisting of 1 to 5 bedrooms, with 1 to 31/2 bathrooms. Our homes range in price, at retail, from approximately $18,000 to $140,000. During 2019, we sold 3,904 home sections (which are entire homes or single floors that are combined to create complete homes) and in 2018, we sold 3,950 home sections.

The Company has one reportable segment. All of our activities are interrelated, and each activity is dependent and assessed based on how each of the activities of Company supports the others. For example, the sale of manufactured homes includes providing transportation and consignment arrangements with dealers. We also provide financing options to the customers to facilitate such sale of homes. In addition, the sale of homes is directly related to financing provided by us. Accordingly, all significant operating and strategic decisions by the chief operating decision‑maker, the Executive Chairman of the Board, are based upon analyses of our company as one segment or unit.

We believe our company is one of the most vertically integrated in the manufactured housing industry, allowing us to offer a complete solution to our customers, from manufacturing custom‑made homes using quality materials and distributing those homes through our expansive network of independent retailers and company‑owned distribution locations, to providing tailored financing solutions for our customers. Our homes are constructed in the United States at one of our three manufacturing facilities in accordance with the construction and safety standards of the U.S. Department of Housing and Urban Development (“HUD”). Our factories employ high‑volume production techniques that allow us to produce, on average, approximately 75 home sections, or 62 fully‑completed homes depending on product mix, in total per week. We use quality materials and operate our own component manufacturing facilities for many of the items used in the construction of our homes. Each home can be configured according to a variety of floor plans and equipped with such features as fireplaces, central air conditioning and state‑of‑the‑art kitchens.

Our homes are marketed under our premier “Legacy” brand name and currently are sold primarily across 15 states through a network of 90 independent retail locations, 13 company‑owned retail locations and through direct sales to owners of manufactured home communities. Our 13 company‑owned retail locations, including 11 Heritage Housing stores and two Tiny House Outlet stores exclusively sell our homes. During 2019,  approximately 48% of our manufactured homes were sold in Texas, followed by 8% in Georgia, 6% in Kansas,  5% in Oklahoma and 5% in Florida.  During 2018,  56% of our manufactured homes were sold in Texas, followed by 13% in Georgia, 11% in Louisiana and 4% in Oklahoma. We plan to deepen our distribution channel by using a portion of the net proceeds from the IPO to expand our company‑owned retail locations in new and existing markets.

We offer three types of financing solutions to our customers. We provide floor plan financing for our independent retailers, which takes the form of a consignment arrangement between the retailer and us. We also provide consumer financing for our products which are sold to end‑users through both independent and company‑owned retail locations, and we provide financing solutions to manufactured housing community owners that buy our products for use in their manufactured housing communities. Our ability to offer competitive financing options at our retail locations

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provides us with several competitive advantages and allows us to capture sales which may not have otherwise occurred without our ability to offer consumer financing.

Factors Affecting Our Performance

We believe that the growth of our business and our future success depend on various opportunities, challenges, trends and other factors, including the following:

·

Consistent with our long‑term strategy of conservatively deploying our capital to achieve above average rates of return, we intend to expand our retail presence in the geographic markets we now serve, particularly in the southern United States. Each retail center requires between $500,000 and $1,500,000 to acquire the location, situate an office, provide inventory, and provide the initial working capital. We expect to open 2 to 4 additional retail centers by the end of 2020.

·

We have purchased several properties in our market area for the purpose of developing manufactured housing communities and subdivisions. As of December 31, 2019, these properties include the following:

 

 

 

 

 

 

 

 

Location

    

Description

 

Date of Acquisition

    

Cost

Bastrop County, Texas

 

400 Acres

 

April 2018

 

$

4,400,000

Bexar County, Texas

    

100 Acres

     

November 2018

 

    

1,300,000

Horseshoe Bay, Texas

 

133 Acres

 

Various 2018-2019

 

 

2,431,000

Johnson County, Texas

 

91.5 Acres

 

July 2019

 

 

445,000

Venus, Texas

 

50 Acres

 

August 2019

 

 

422,000

 

 

 

 

 

 

$

8,998,000

 

·

We also expect to provide financing solutions to a select group of our manufactured housing community‑owner customers in a manner that includes developing new sites for products in or near urban locations where there is a shortage of sites to place our products. These solutions will be structured to give us an attractive return on investment when coupled with the gross margin we expect to make on products specifically targeted for sale to these new manufactured housing communities.

·

Our financial performance will be impacted by our ability to fulfill current orders for our manufactured homes from dealers and customers. Currently, our two Texas manufacturing facilities are operating at or near peak capacity, with limited ability to increase the volume of homes produced at those plants. Our Georgia manufacturing facility has unutilized square footage available and with additional investment can add capacity to increase the number of homes that can be manufactured. We intend to increase production at the Georgia facility over time, particularly in response to orders increasingly being generated from new markets in Florida and the Carolinas. In order to maintain our growth, we will need to be able to continue to properly estimate anticipated future volumes when making commitments regarding the level of business that we will seek and accept, the mix of products that we intend to manufacture, the timing of production schedules and the levels and utilization of inventory, equipment and personnel.

·

The coronavirus pandemic is an evolving threat to the economy and all businesses.  At this time both the duration of the pandemic and the magnitude of the economic consequences are unknown.  Risks to the Company include but are not limited to:

o

increased loan losses or deferred loan payments as loan obligors suffer cash flow issues resulting from reduced employment, reduced rental income or unit sales, or other factors;

o

reduced sales volume as potential customers are unable to shop for new homes or cannot qualify for a home purchase, retail dealers or company stores reduce or stop operations, or MHP owners reduce their future home purchases;

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o

reduced production resulting from factors such as the spread of the illness through the Company’s workforce, reduced product demand, or government-mandated closures of our factories, company-owned stores, or retail lots of independent dealers who carry our products;

o

delays in development projects as zoning, regulatory, and permitting decisions are likely to be postponed and the expected negative impact of the pandemic on the construction industry;

o

reduced raw material availability related to global supply chain disruption from the pandemic, including possible border closures;

o

decreased cash flow from operations which could negatively affect our liquidity;

o

an outbreak of illness among our management and accounting staff could negatively affect our ability to maintain operations, operate our financial systems, delay our statutory reporting, and reduce our internal control of financial reporting.

We continue to monitor government responses to support the economy and evaluate how those actions might mitigate the risks noted above.  At this time, we believe that the pandemic will have a negative effect on our financial results that could range from minor to material. 

Management has taken a number of actions in recent weeks, including stimulating demand by offering discounts and modified purchase terms, reducing production labor, suspending overtime, and reducing rates of pay for non-production workers.  Additionally, the Company has negotiated a new credit agreement with its primary bank that will expand and extend our credit facility.  Management expects to close and execute the new agreement in the near future.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Management believes the following accounting policies are critical to our operating results or may affect significant judgments and estimates used in the preparation of our financial statements.

Allowance for Loan Losses—Consumer Loan Receivable

The allowance for loan losses reflects management’s estimate of losses inherent in the consumer loans that may be uncollectible based upon review and evaluation of the consumer loan portfolio as of the date of the balance sheet. A reserve is calculated after considering, among other things, the loan characteristics, including the financial condition of borrowers, the value and liquidity of collateral, delinquency and historical loss experience.

The allowance for loan losses is comprised of two components: the general reserve and specific reserves. Our calculation of the general reserve considers the historical loss rate for the last three years, adjusted for the estimated loss discovery period and any qualitative factors both internal and external to our company. Specific reserves are determined based on probable losses on specific classified impaired loans.

Our policy is to place a loan on nonaccrual status when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is normally when either principal or interest is past

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due and remains unpaid for more than 90 days. Management implemented this policy based on an analysis of historical data and performance of loans and the likelihood of recovery once principal or interest payments became delinquent and were aged more than 90 days. Payments received on nonaccrual loans are accounted for on a cash basis, first to interest and then to principal, as long as the remaining book balance of the asset is deemed to be collectible. The accrual of interest resumes when the past due principal or interest payments are brought within 90 days of being current.

Impaired loans are those loans where it is probable we will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impaired loans, or portions thereof, are charged-off when deemed uncollectible. A loan is generally deemed impaired if it is  more than 90 days past due on principal or interest, is in bankruptcy proceedings, or is in the process of repossession. A specific reserve is created for impaired loans based on fair value of underlying collateral value, less estimated selling costs. We used certain factors to determine to the value of the underlying collateral for impaired loans. These factors were: (1) the length of time the unit was unsold after construction; (2) the amount of time the house was occupied; (3) the cooperation level of the borrowers, i.e., loans requiring legal action or extensive field collection efforts will reduce the value; (4) units located on private property present additional value loss because it tends to be more expensive to remove units from private property as opposed to a manufactured home park; (5) the length of time the borrower has lived in the house without making payments; (6) location and size, including market conditions; and (7) the experience and expertise of the particular dealer assisting in collection efforts.

Collateral for repossessed loans is acquired through foreclosure or similar proceedings and is recorded at the estimated fair value of the home, less the costs to sell. At repossession, the fair value of the collateral is computed based on the historical recovery rates of previously charged‑off loans; the loan is charged off and the loss is charged to the allowance for loan losses. At each reporting period, the fair value of the collateral is adjusted to the lower of the amount recorded at repossession or the estimated sales price less estimated costs to sell, based on current information.

Allowance for Loan Losses—MHP Notes

MHP Notes are stated at amounts due from customers net of allowance for loan losses.  We determine the allowance by considering several factors including the aging of the past due balance, the customer’s payment history, and our previous loss history.  We establish an allowance reserve composed of specific and general reserve amounts that are deemed to be uncollectible. Historically we have not experienced material losses on the MHP Notes.

Inventories

Inventories consist of raw materials, work‑in‑process, and finished goods and are stated at the lower of cost or net realizable value. Raw materials cost approximates the first‑in first‑out method. Finished goods and work‑in‑process are based on a standard cost system that approximates actual costs using the specific identification method.

Estimates of the lower of cost and net realizable value of inventory are determined by comparing the actual cost of the product to the estimated selling prices in the ordinary course of business based on current market and economic conditions, less reasonably predictable costs of completion, disposal, and transportation of the inventory.

We evaluate inventory based on historical experience to estimate our inventory not expected to be sold in less than a year. We classify our inventory not expected to be sold in one year as non‑current.

Property, Plant and Equipment

Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation expense is calculated using the straight‑line method over the estimated useful lives of each asset. Estimated useful lives for significant classes of assets are as follows: buildings and improvements, 30 to 39 years; vehicles, 5 years; machinery and equipment, 7 years; and furniture and fixtures, 7 years. Repair and maintenance charges are expensed as incurred. Expenditures for major renewals or betterments which extend the useful lives of existing property, plant, and equipment are capitalized and depreciated. We periodically evaluate the carrying value of long‑lived assets to be held and used and when events and circumstances warrant such a review. The carrying value of long‑lived assets is considered impaired

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when the anticipated undiscounted cash flow from such assets is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long‑lived assets. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long‑lived assets to be disposed of are determined in a similar manner, except that the fair values are based primarily on independent appraisals and preliminary or definitive contractual arrangements less costs to dispose.

Revenue Recognition

Direct Sales

Revenue from homes sold to independent retailers that are not financed and not under a consignment arrangement are generally recognized upon execution of a sales contract and when the home is shipped, at which time title passes to the independent retailer and collectability is reasonably assured. These types of homes are generally either paid for prior to shipment or floor plan financed through a third party lender by the independent retailer through standard industry arrangements, which can include repurchase agreements.

Commercial Sales

Revenue from homes sold to mobile home parks under commercial loan programs involving funds provided by our company is recognized when the home is shipped, at which time title passes to the customer and a sales and financing contract is executed, down payment received, and collectability is reasonably assured.

Consignment Sales

We provide floor plan financing for independent retailers, which takes the form of a consignment arrangement. Sales under a consignment agreement are recognized as revenue when we enter into a sales contract and receive full payment for cash sales, and title passes; or, upon execution of a sales and financing contract, with a down payment received from and upon delivery of the home to the final individual customer, at which time title passes and collectability is reasonably assured. For homes sold to customers through independent retailers under consignment arrangements and financed by us, a percentage of profit is paid to the independent retailer up front as a commission for sale and also reimburses certain direct expenses incurred by the independent retailer for each transaction. Such payments are recorded as cost of product sales in our statement of operations.

Retail Store Sales

Revenue from direct retail sales through company‑owned retail locations are generally recognized when the customer has entered into a legally binding sales contract, payment is received, the home is delivered at the customer’s site, title has transferred, and collection is reasonably assured. Retail sales financed by us are recognized as revenue upon the execution of a sales and financing contract with a down payment received and upon delivery of the home to the final customer, at which time title passes and collectability is reasonably assured.

Revenue is recognized net of sales taxes.

Product Warranties

We provide retail home buyers with a one‑year warranty from the date of purchase on manufactured inventory. Product warranty costs are accrued when the covered homes are sold to customers. Product warranty expense is recognized based on the terms of the product warranty and the related estimated costs. Factors used to determine the warranty liability include the number of homes under warranty and the historical costs incurred in servicing the warranties. The accrued warranty liability is reduced as costs are incurred and warranty liability balance is included as part of accrued liabilities in our balance sheet.

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Table of Contents

Results of Operations

The following discussion should be read in conjunction with the information set forth in the financial statements and the accompanying notes appearing elsewhere in this Form 10-K.

Comparison of Years ended December 31, 2019 and 2018 (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended

 

    

 

 

    

 

 

 

December 31, 

 

 

 

 

 

 

 

    

2019

    

2018

    

$ change

    

% change

 

Net revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

$

143,196

 

$

139,165

 

$

4,031

 

2.9

%

Consumer and MHP loans interest

 

 

22,188

 

 

18,759

 

 

3,429

 

18.3

%

Other

 

 

3,572

 

 

3,953

 

 

(381)

 

(9.6)

%

Total net revenue

 

 

168,956

 

 

161,877

 

 

7,079

 

4.4

%

Operating expenses:

 

 

  

 

 

  

 

 

  

 

  

 

Cost of product sales

 

 

104,903

 

 

107,231

 

 

(2,328)

 

(2.2)

%

Selling, general administrative expenses

 

 

25,482

 

 

21,017

 

 

4,465

 

21.2

%

Dealer incentive

 

 

731

 

 

829

 

 

(98)

 

(11.8)

%

Income from operations

 

 

37,840

 

 

32,800

 

 

5,040

 

15.4

%

Other income (expense)

 

 

  

 

 

  

 

 

  

 

  

 

Non‑operating interest income

 

 

300

 

 

190

 

 

110

 

57.9

%

Miscellaneous, net

 

 

152

 

 

162

 

 

(10)

 

(6.2)

%

Interest expense

 

 

(702)

 

 

(2,507)

 

 

1,805

 

(72.0)

%

Total other

 

 

(250)

 

 

(2,155)

 

 

1,905

 

(88.4)

%

Income before income tax expense

 

 

37,590

 

 

30,645

 

 

6,945

 

22.7

%

Income tax expense

 

 

(8,746)

 

 

(9,132)

 

 

386

 

(4.2)

%

Net income

 

$

28,844

 

$

21,513

 

$

7,331

 

34.1

%

 

Product sales primarily consist of direct sales, commercial sales, consignment sales and retail store sales. Product sales increased  $4.0 million, or 2.9%, in 2019 as compared to 2018 even though the volume of homes sold remained flat.  This change was driven by an increase in commercial sales and retail stores sales partially offset by a decline in direct sales, consignment sales and other product sales. The first quarter of 2018 included $8.9 million of sales as a subcontractor operating under a contract with FEMA to provide housing for victims of Hurricane Harvey. Direct sales decreased $17.5 million to $15.2 million in 2019 from $32.7 million in 2018 primarily due to the nonrecurring sales to FEMA.  Commercial sales increased $31.3 million to $64.4 million in 2019 from $33.1 million in 2018, and our company‑owned retail stores sales increased $3.0 million to $16.1 million in 2019 from $13.1 million in 2018.  These increases were offset by a net $11.9 million decrease in consignment sales to $42.9 million from $54.8 million in 2018. Other product sales decreased $0.8 million to $4.6 million in 2019 from $5.4 million in 2018 and is primarily due to a $1.3 million decline in direct freight related to the 2018 FEMA sales and a $0.9 million decline in used units partially offset by a $1.4 million increase in other miscellaneous product sales.

Net revenue attributable to our factory‑built housing consisted of the following in 2019 and 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Year Ended

 

 

 

    

    

 

 

 

December 31, 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

    

2019

    

2018

    

$ Change

    

% Change

 

Net revenue:

 

 

  

 

 

  

 

 

  

 

  

 

Products sold

 

$

143,196

 

$

139,165

 

$

4,031

 

2.9

%

Total products sold

 

 

3,397

 

 

3,392

 

 

 5

 

0.1

%

Net revenue per product sold

 

$

42,154

 

$

41,027

 

$

1,126

 

2.7

%

 

In 2019, our net revenue per product sold increased because of changes in our product sales mix. We had increases in sales to manufactured home communities and through our company‑owned retail stores. These increases

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were partially offset by declines in direct sales and consignment sales. Sales through our company‑owned retail stores and sales to manufactured home communities have higher margins than our direct sales and consignment sales. In addition, there were price increases to our product prices due to rising material and labor costs, which resulted in higher home sales prices and more revenue generated per home sold.

Consumer and MHP loans interest income grew $3.4 million, or 18.3%, in 2019 as compared to 2018 and is related to our increase in outstanding MHP Note portfolio and consumer loan portfolio. Between December 31, 2019 and December 31, 2018 our MHP Note portfolio increased by $34.4 million and the consumer loan portfolio increased by $7.9 million.

Other revenue primarily consists of service fees and consignment fees. Other revenue decreased $0.4 million or 9.7%  and is primarily due to a $0.3 million decrease in setup and service fees and a $0.1 decrease in consignment fees.

The cost of product sales decreased $2.3 million, or 2.2%, in 2019 as compared to 2018.  The reduction in costs is primarily related to the shift in our product sales mix, including the decline in product sales to FEMA.

Selling, general and administrative expenses increased $4.5 million, or 21.2%, in 2019 as compared to 2018.  This increase resulted from a $1.8 million increase in salaries and incentive costs primarily related to our operations as a public company, a $1.2 million increase in salaries related to the operations of our company‑owned retail lots, a $1.1 million increase in expense for services performed by outside contractors, a $0.8 million increase in loan loss reserve and a $0.4 million increase in advertising and promotions. These increases were partially offset by a net decrease of $0.6 million in warranty costs related to the decline in product sales to FEMA. In addition, dealer incentive expense decreased $0.1 million, or 11.8% in 2019 as compared to 2018. This decrease was the result of the decline in consignment sales. 

Other income (expense), net was a loss of $0.3 million in 2019, as compared to a loss of $2.2 million in 2018.  This decline was primarily due to a decrease of $41.4 million in our average borrowings outstanding on our lines of credit after the completion of our IPO.  Following the completion of our IPO, we paid off over $40.0 million borrowed against our lines of credit.

Income tax expense for 2019 was $8.7 million compared to $9.1 million for 2018.  The effective tax rate for the year ended December 31, 2019 was 23.3% and differs from the federal statutory rate of 21% primarily due to state income taxes. The effective tax rate for the year ended December 31, 2018 was 29.8% and differs from the federal statutory rate of 21% due to recognition of a deferred tax expense associated with the corporate reorganization, state income taxes and other permanent differences between book and tax basis.

Liquidity and Capital Resources

Cash and Cash Equivalents

We consider all cash and highly liquid investments with an original maturity of three months or less to be cash equivalents. We maintain cash balances in bank accounts that may, at times, exceed federally insured limits. We have not incurred any losses from such accounts and management considers the risk of loss to be minimal. We believe that cash flow from operations, cash and cash equivalents at December 31, 2019,  and availability on our lines of credit will be sufficient to fund our operations and provide for growth for the next 12 to 18 months and into the foreseeable future. We have negotiated a new credit agreement with Capital One, N.A. that will replace, expand and extend our credit availability. We expect to close and execute the new agreement in the near future. As of December 31, 2019, we had approximately $1.7 million in cash and cash equivalents, compared to $2.6 million as of December 31, 2018. In January 2019, we received gross proceeds of $7.2 million from the exercise of the underwriters’ option to purchase additional shares to cover over-allotments in connection with the IPO. These proceeds were primarily used for payments to reduce our borrowings under the lines of credit.

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Table of Contents

Cash Flow Activities

 

 

 

 

 

 

 

 

 

Year Ended

 

 

December 31, 

 

 

(in thousands)

 

    

2019

    

2018

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

(4,193)

 

$

2,820

Net cash used in investing activities

 

$

(15,113)

 

$

(4,453)

Net cash provided by financing activities

 

$

18,431

 

$

3,804

Net change in cash and cash equivalents

 

$

(875)

 

$

2,171

Cash and cash equivalents at beginning of year

 

$

2,599

 

$

428

Cash and cash equivalents at end of year

 

$

1,724

 

$

2,599

 

Comparison of Cash Flow Activities from 2019 to 2018

Net cash provided by operating activities decreased $7.0 million during the year ended December 31, 2019, compared to the year ended December 31, 2018,  primarily as a result of increased volume of loan originations supporting sales to MHPs net of principal collections, growth in our portfolio of home units leased to MHPs, and reduced growth in non-loan current liabilities. The decrease in operating cash flows described above was partially offset by reduced inventories, cash generated by operating income before non-cash adjustments, and reduced growth in consumer loan originations net of principal collections.

Net cash used in investing activities of $15.1 million in 2019 was primarily attributable to $11.9 million used for loans to third parties for the development of manufactured housing parks, $3.6 million used for the acquisition of land for development and $0.4 million used to purchase consumer loans. In addition, we had capital expenditures of $1.2 million for property plant and equipment and $0.1 million for transportation equipment. These were offset by collections of $0.4 million of loans we made to third parties for the development of manufactured housing parks and collections of $1.0 million from our purchased consumer loans.  

Net cash provided by financing activities of  $18.4 million in 2019 was primarily attributable to net proceeds of $17.2 million on our lines of credit, net proceeds of $6.7 million from the issuance of our common stock and a $1.6 million increase in escrow deposits received by the company offset by $3.1 million for the purchase of treasury stock and $4.0 million of payments on our notes payable.  

Indebtedness

Capital One Revolver.  We have a revolving line of credit (“Revolver 1”) with Capital One, N.A. with a maximum credit limit of $45,000,000 as of December 31, 2019.  On May 12, 2017, Revolver 1 was amended to extend the maturity date to May 11, 2020 and increase the maximum borrowing availability under Revolver 1 to $45,000,000. For the years ended December 31, 2019 and 2018,  Revolver 1 accrued interest at one-month LIBOR plus 2.40%. The interest rates in effect as of December 31, 2019 and 2018 were 4.09% and 4.78%, respectively. Amounts available under Revolver 1 are subject to a formula based on eligible consumer loans and MHP Notes and are secured by all accounts receivable and a percentage of the consumer loans receivable and MHP Notes.  The amount of available credit under Revolver 1 was $16,140,000 and $41,321,000 at December 31, 2019 and 2018, respectively. For the years ended December 31, 2019 and 2018, interest expense was $396,000 and $1,701,000, respectively. The outstanding balance as of December 31, 2019 and 2018 was $28,860,000 and $3,679,000, respectively. We were in compliance with all financial covenants as of December 31, 2019, including that we maintain a tangible net worth of at least $90,000,000 and that we maintain a ratio of debt to EBITDA of 4‑to‑1, or less. 

The Company has negotiated a new credit agreement with Capital One, N.A. that will replace, expand, and extend our credit availability.  Management expects to close and execute the new agreement in the near future.

Veritex Community Bank Revolver.  In April 2016, we entered into an agreement with Veritex Community Bank to secure an additional revolving line of credit of $15,000,000 (“Revolver 2”). Revolver 2 accrues interest at one-

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month LIBOR plus 2.50% and all unpaid principal and interest is due at maturity on April 4, 2021. Revolver 2 is secured by all finished goods inventory excluding repossessed homes. Amounts available under Revolver 2 are subject to a formula based on eligible inventory. The interest rates in effect as of December 31, 2019 and 2018  were 4.19% and 4.85%, respectively. On May 12, 2017, we entered into an agreement to increase the maximum borrowing availability under Revolver 2 to $20,000,000. On October 15, 2018, Revolver 2 was amended to extend the maturity date from April 4, 2019 to April 4, 2021. The amount of available credit under Revolver 2 was $11,262,000 and $9,906,000 at December 31, 2019 and 2018, respectively. For the years ended December 31, 2019 and 2018, interest expense was $131,000 and $700,000, respectively. The outstanding balance as of December 31, 2019 and 2018 was $2,001,000 and $10,000,000, respectively. We were in compliance with all financial covenants as of December 31, 2019, including that we maintain a tangible net worth of at least $80,000,000.

Notes Payable.  We  have a promissory note with Woodhaven Bank. The amount due under the promissory note accrues interest at an annual rate of 3.85% through February 2, 2017 and then at the prime interest rate plus 0.60% through maturity on April 7, 2018. The loan was subsequently renewed through April 7, 2033. The promissory note calls for monthly principal and interest payments of $30,000 with a final payment due at maturity. The interest rates in effect as of December 31, 2018 was 4.25%. The note is secured by certain of our real property. Interest paid on the note payable was $135,000 and $159,000 for the years ended December 31, 2019 and 2018, respectively. The balance outstanding on the note payable at December 31, 2018 was $3,552,000. In October 2019, this note was paid in full.

On May 24, 2016, we signed a promissory note for $515,000 with Eagle One, LLC collateralized by the purchase of real property located in Oklahoma City, Oklahoma. The amount due under the promissory note accrues interest at an annual rate of 6.00%. The promissory note calls for monthly principal and interest payments of $6,000 until June 1, 2026. Interest paid on the note payable was $1,000 and $26,000 for the years ended December 31, 2019 and 2018, respectively. The balance outstanding on the note payable at December 31, 2018 was $414,000. In January 2019, this note was paid in full.

Notes Payable to an Affiliate.  On February 2, 2016, we entered into a $1,500,000 note payable agreement with stated annual interest rates of 3.75% with Shipley & Sons, Ltd., a related party through the common ownership of Kenneth E. Shipley, a significant shareholder of our company and our President and Chief Executive Officer. The note was due on demand. Interest paid on the note payable was $47,000 for the year ended December 31, 2018. On October 18, 2018, this note payable was paid in full.

PILOT Agreement.  In December 2016, we entered into a Payment in Lieu of Taxes (“PILOT”) agreement commonly offered in Georgia by local community development programs to encourage industry development. The net effect of the PILOT agreement is to provide us with incentives through the abatement of local, city and county property taxes and to provide financing for improvements to our Georgia plant (the “Project”).  In connection with the PILOT agreement, the Putman County Development Authority provides a credit facility for up to $10,000,000, which can be drawn upon to fund Project improvements and capital expenditures as defined in the agreement.  If funds are drawn, we would pay transactions costs and debt service payments. The PILOT agreement requires interest payments of 6.00% per annum on outstanding balances, which are due each December 1 through maturity on December 1, 2021, at which time all unpaid principal and interest are due. The PILOT agreement is collateralized by the assets of the Project.  As of December 31, 2019, we had not drawn down on this credit facility.

Contractual Obligations

The following table is a summary of contractual cash obligations as of December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Payments Due by Period

 

 

 

 

 

 

 

 

 

 

 

 

Contractual Obligations

    

Total

     

2020

    

2021 - 2022

    

2023 - 2024

     

After 2024

Lines of credit

 

$

30,861,000

 

28,860,000

 

2,001,000

 

 —

 

 —

Operating lease obligations

 

$

3,176,000

 

604,000

 

1,024,000

 

739,000

 

809,000

 

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Off‑Balance Sheet Arrangements

We did not have any off‑balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, net sales, results of operations, liquidity or capital expenditures. However, we do have a repurchase agreement with a  financial institution providing inventory financing for independent retailers of our products. Under this agreement, we have agreed to repurchase homes at declining prices over the term of the agreement (24 months). Our obligation under this repurchase agreement ceases upon the purchase of the home by the retail customer. The maximum amount of our contingent obligations under such repurchase agreements was approximately $260,000 and $2,186,000 as of December 31, 2019 and 2018, respectively, without reduction for the resale value of the homes. We may be required to honor contingent repurchase obligations in the future and may incur additional expense as a consequence of these repurchase agreements. We consider our obligations on current contracts to be immaterial and accordingly we have not recorded any reserve for repurchase commitment as of December 31, 2019.

Recent Accounting Pronouncements

For information regarding recently issued and adopted accounting pronouncements, see Note 2, Summary of Significant Accounting Policies, to our December 31, 2019 financial statements included in Part II, Item 8, Financial Statements and Supplementary Data, of this Form-10K.

Emerging Growth Company Status

We are an “emerging growth company,” as defined in the JOBS Act.  Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of these exemptions until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of this exemption.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable for smaller reporting companies.

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ITEM 8.      FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

 

Page

AUDITED FINANCIAL STATEMENTS OF LEGACY HOUSING CORPORATION

 

 

 

Reports of Independent Registered Public Accounting Firms 

32

Balance Sheets as of December 31, 2019 and 2018 

34

Statements of Operations for the Years Ended December 31, 2019 and 2018 

35

Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2019 and 2018 

36

Statements of Cash Flows for the Years Ended December 31, 2019 and 2018 

37

Notes to Financial Statements 

38

 

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Report of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors and Shareholders

Legacy Housing Corporation

Bedford, Texas

 

Opinion on the financial statements

We have audited the accompanying balance sheet of Legacy Housing Corporation (the Company) as of December 31, 2019, and the related statements of operations, changes in stockholders’ equity and cash flows for the year then ended, and the related notes (collectively referred to as the financial statements).  In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.  Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.  Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.  We believe that our audit provides a reasonable basis for our opinion.

/s/ BKD, LLP

We have served as the Company’s auditor since 2019.

Dallas, Texas

March 30, 2020

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Board of Directors and Shareholders

Legacy Housing Corporation

 

Opinion on the financial statements

We have audited the accompanying balance sheet of Legacy Housing Corporation (a Delaware corporation) (the “Company”) as of December 31, 2018, and the related statements of operations, changes in stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

/s/ GRANT THORNTON LLP

We served as the Company’s auditor from 2018 to 2019.

Dallas, Texas

April 9, 2019

 

 

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LEGACY HOUSING CORPORATION

BALANCE SHEETS (in thousands, except share data)

 

 

 

 

 

 

 

 

    

December 31, 

    

December 31, 

 

 

2019

 

2018

Assets

 

 

 

 

 

 

Current assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

1,724

 

$

2,599

Accounts receivable, net of allowance for doubtful accounts

 

 

1,767

 

 

2,953

Current portion of consumer loans

 

 

5,994

 

 

4,945

Current portion of notes receivable from mobile home parks (“MHP”)

 

 

10,969

 

 

7,297

Current portion of other notes receivable

 

 

428

 

 

379

Inventories

 

 

27,228

 

 

42,033

Prepaid expenses and other current assets

 

 

4,857

 

 

2,938

Total current assets

 

 

52,967

 

 

63,144

Property, plant and equipment, net

 

 

21,038

 

 

17,128

Consumer loans, net of deferred financing fees and allowance for loan losses

 

 

99,048

 

 

92,230

Notes receivable from mobile home parks (“MHP”)

 

 

81,375

 

 

50,638

Other notes receivable, net of allowance for loan losses

 

 

13,050

 

 

1,912

Other assets

 

 

4,212

 

 

2,587

Inventory non‑current

 

 

11,930

 

 

7,399

Total assets

 

$

283,620

 

$

235,038

Liabilities and Stockholders' Equity

 

 

  

 

 

  

Current liabilities:

 

 

  

 

 

  

Accounts payable

 

$

5,168

 

$

2,828

Accrued liabilities

 

 

8,808

 

 

9,156

Customer deposits

 

 

1,567

 

 

2,222

Escrow liability

 

 

7,530

 

 

5,951

Line of credit

 

 

28,860

 

 

 —

Current portion of notes payable

 

 

 —

 

 

228

Total current liabilities

 

 

51,933

 

 

20,385

Long‑term liabilities:

 

 

  

 

 

  

Lines of credit

 

 

2,001

 

 

13,679

Deferred income taxes

 

 

1,766

 

 

1,842

Note payable, net of current portion

 

 

 —

 

 

3,737

Dealer incentive liability

 

 

5,531

 

 

6,115

Total liabilities

 

 

61,231

 

 

45,758

Commitments and contingencies (Note 12)

 

 

  

 

 

  

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, $.001 par value, 10,000,000 shares authorized: issued -0- 

 

 

 —

 

 

 —

Common stock, $.001 par value, 90,000,000 shares authorized; 24,620,079 and 24,000,000 issued and 24,320,079 and 24,000,000 outstanding at December 31, 2019 and 2018, respectively

 

 

25

 

 

24

Treasury stock at cost, 300,000 and -0- shares at December 31, 2019 and 2018, respectively

 

 

(3,060)

 

 

 —

Additional paid-in-capital

 

 

175,067

 

 

167,743

Retained earnings

 

 

50,357

 

 

21,513

Total stockholders' equity

 

 

222,389

 

 

189,280

Total liabilities and stockholders' equity

 

$

283,620

 

$

235,038

 

See accompanying notes to financial statements

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LEGACY HOUSING CORPORATION

StatementS of Operations (in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 

 

 

    

2019

    

2018

 

Net revenue:

 

 

  

 

 

  

 

Product sales

 

$

143,196

 

$

139,165

 

Consumer and MHP loans interest

 

 

22,188

 

 

18,759

 

Other

 

 

3,572

 

 

3,953

 

Total net revenue

 

 

168,956

 

 

161,877

 

Operating expenses:

 

 

  

 

 

  

 

Cost of product sales

 

 

104,903

 

 

107,231

 

Selling, general administrative expenses

 

 

25,482

 

 

21,017

 

Dealer incentive

 

 

731

 

 

829

 

Income from operations

 

 

37,840

 

 

32,800

 

Other income (expense):

 

 

  

 

 

  

 

Non‑operating interest income

 

 

300

 

 

190

 

Miscellaneous, net

 

 

152

 

 

162

 

Interest expense

 

 

(702)

 

 

(2,507)

 

Total other

 

 

(250)

 

 

(2,155)

 

Income before income tax expense

 

 

37,590

 

 

30,645

 

Income tax expense

 

 

(8,746)

 

 

(9,132)

 

Net income

 

$

28,844

 

$

21,513

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic

 

 

24,379,667

 

 

20,197,260

 

Diluted

 

 

24,436,954

 

 

20,197,260

 

Net income per share:

 

 

 

 

 

 

 

Basic

 

$

1.18

 

$

1.07

 

Diluted

 

$

1.18

 

$

1.07

 

 

See accompanying notes to financial statements.

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LEGACY HOUSING CORPORATION

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Total Partners’

 

Common Stock

    

Treasury

 

Additional

 

Retained

 

 

 

 

    

capital

    

Shares

    

Amount

 

stock

    

paid-in-capital

    

earnings

    

Total

Balances, December 31, 2017

 

$

124,271

 

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

Shares issued upon incorporation

 

 

(124,271)

 

20,000,000

 

 

20

 

 

 —

 

 

124,251

 

 

 —

 

 

124,271

Sale of common stock in initial public offering, net of offering costs of $4,504

 

 

 —

 

4,000,000

 

 

 4

 

 

 —

 

 

43,492

 

 

 —

 

 

43,496

Net income

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

21,513

 

 

21,513

Balances, December 31, 2018

 

$

 —

 

24,000,000

 

$

24

 

$

 —

 

$

167,743

 

$

21,513

 

$

189,280

Sale of over-allotment common stock in initial public offering, net of offering costs of $505

 

 

 —

 

600,000

 

 

 1

 

 

 —

 

 

6,694

 

 

 —

 

 

6,695

Share based compensation expense and stock units vested

 

 

 —

 

20,079

 

 

 —

 

 

 —

 

 

630

 

 

 —

 

 

630

Purchase of treasury stock

 

 

 —

 

 —

 

 

 —

 

 

(3,060)

 

 

 —

 

 

 —

 

 

(3,060)

Net income

 

 

 —

 

 —

 

 

 —

 

 

 

 

 

 —

 

 

28,844

 

 

28,844

Balances, December 31, 2019

 

$

 —

 

24,620,079

 

$

25

 

$

(3,060)

 

$

175,067

 

$

50,357

 

$

222,389

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to financial statements

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LEGACY HOUSING CORPORATION

STATEMENTS OF CASH FLOWS (in thousands)

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 

 

 

    

2019

    

2018

    

Operating activities:

 

 

  

 

 

  

 

Net income

 

$

28,844

 

$

21,513

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

  

 

 

  

 

Depreciation expense

 

 

1,014

 

 

838

 

Provision for loan loss—consumer loans

 

 

769

 

 

851

 

Deferred income taxes

 

 

(76)

 

 

1,842

 

Share based payment expense

 

 

630

 

 

 —

 

Changes in operating assets and liabilities: