FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended February 2, 2002
Commission File number 0-6506
NOBILITY HOMES, INC.
(Exact name of registrant as specified in its charter)
Florida 59-1166102
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
3741 S.W. 7th Street
Ocala, Florida 34474
(Address of principal executive offices) (Zip Code)
(352) 732-5157
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X ; No _____.
The number of shares outstanding of each of the issuer's classes of common
equity as of March 19, 2002 was 4,124,513.
NOBILITY HOMES, INC.
INDEX
Page
Number
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of February 2, 2002 and
November 3, 2001 3
Consolidated Statements of Income for the three months ended
February 2, 2002 and February 3, 2001 4
Consolidated Statements of Cash Flows for three months ended
February 2, 2002 and February 3, 2001 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Conditions 8
PART II. Other Information and Signatures 10
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits
Page 2
PART I. FINANCIAL INFORMATION
NOBILITY HOMES, INC.
CONSOLIDATED BALANCE SHEETS
February 2, 2002 November 3, 2001
---------------- ----------------
ASSETS (Unaudited)
- ------
Current Assets:
Cash and cash equivalents $ 10,619,901 $ 11,005,012
Accounts receivable - trade 543,899 374,145
Inventories 7,231,206 7,606,911
Deferred income taxes 708,600 708,600
Prepaid expenses and other current assets 552,591 261,937
------------ ------------
Total current assets 19,656,197 19,956,605
Property, plant and equipment, net 2,931,582 2,625,597
Investment in joint venture - Majestic 21 907,559 802,175
Deferred income taxes - noncurrent 33,600 33,600
Other assets 2,338,135 2,323,134
------------ ------------
Total assets $ 25,867,073 $ 25,741,111
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 937,073 $ 1,114,244
Accrued expenses and other current liabilities 1,846,281 2,166,706
Accrued compensation 317,331 410,906
Income taxes payable 613,225 325,553
------------ ------------
Total current liabilities 3,713,910 4,017,409
------------ ------------
Commitments and contingencies liabilities
Stockholders' equity:
Preferred stock, $.10 par value, 500,000
shares authorized, none issued -- --
Common stock, $.10 par value, 10,000,000
shares authorized; 5,364,907 shares issued 536,491 536,491
Additional paid in capital 8,629,144 8,629,144
Retained earnings 19,879,915 19,286,981
Less treasury stock at cost, 1,240,394 and
1,220,469 shares, respectively, in 2002 and 2001 (6,892,387) (6,728,914)
------------ ------------
Total stockholders' equity 22,153,163 21,723,702
------------ ------------
Total liabilities and stockholders' equity $ 25,867,073 $ 25,741,111
============ ============
Page 3
NOBILITY HOMES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
------------------
February 2, February 3,
2002 2001
-------------- --------------
Net sales $ 8,244,123 $ 5,305,224
Net sales - related parties 44,325 --
----------- -----------
Total net sales 8,288,448 5,305,224
Cost of goods sold (6,180,373) (3,827,012)
----------- -----------
Gross profit 2,108,075 1,478,212
Selling, general and administrative expenses (1,381,285) (1,277,300)
Operating income 726,790 200,912
----------- -----------
Other income:
Interest income 58,650 131,534
Undistributed earnings in joint venture - Majestic 21 105,384 74,081
Gain on recovery of TLT, Inc. note receivable -- 100,000
Miscellaneous income 4,110 12,302
----------- -----------
168,144 317,917
----------- -----------
Income before provision for income taxes 894,934 518,829
Provision for income taxes (302,000) (234,000)
----------- -----------
Income before cumulative effect adjustment 592,934 284,829
Cumulative effect adjustment, net of tax -- (77,439)
----------- -----------
Net income $ 592,934 $ 207,390
=========== ===========
Average shares outstanding
Basic 4,132,133 4,232,358
Diluted 4,149,232 4,232,358
Earnings per share
Basic $ .14 $ .04
Diluted $ .14 $ .04
Page 4
NOBILITY HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
------------------
February 2, February 3,
2002 2001
-------------- --------------
Cash flows from operating activities:
Net income $ 592,934 $ 207,390
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting change -- 77,439
Depreciation and amortization 46,113 47,261
Impairment adjustment of goodwill -- --
Gain on recovery of TLT, Inc. note receivable -- (100,000)
Undistributed earnings in joint venture - Majestic 21 (105,384) (74,081)
Increase in cash surrender value of life insurance (15,000) (25,000)
Decrease (increase) in:
Accounts receivable - trade (169,754) (219,882)
Inventories 375,705 (473,376)
Prepaid expenses and other current assets (290,654) (177,220)
(Decrease) increase in:
Accounts payable (177,171) (262,469)
Accrued expenses and other current liabilities (320,425) (22,102)
Accrued compensation (93,575) (69,462)
Income taxes payable 287,672 233,997
------------ ------------
Net cash provided by (used in) operating activities 130,461 (857,505)
------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (352,099) (48,055)
Collection of TLT,Inc. note receivable -- 100,000
------------ ------------
Net cash provided by (used in) investing activities (352,099) 51,945
------------ ------------
Cash flows from financing activities:
Purchase of treasury stock (163,473) (1,162,199)
------------ ------------
Net cash used in financing activities (163,473) (1,162,199)
------------ ------------
Decrease in cash and cash equivalents (385,111) (1,967,759)
Cash and cash equivalents at beginning of quarter 11,005,012 9,828,122
------------ ------------
Cash and cash equivalents at end of quarter $ 10,619,901 $ 7,860,363
============ ============
Supplemental disclosure of cash flow information
Interest Paid $ -- $ --
============ ============
Income taxes paid $ 100,000 $ --
============ ============
Page 5
NOBILITY HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The unaudited financial information included in this report includes all
adjustments which are, in the opinion of management, necessary to reflect
a fair statement of the results for the interim periods. The operations
for the three months ended February 2, 2002 are not necessarily
indicative of the results of the full fiscal year.
Certain information and footnote disclosure normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
Securities and Exchange Commission rules and regulations governing Form
10-Q. The condensed financial statements included in this report should
be read in conjunction with the financial statements and notes thereto
included in the Registrant's November 3, 2001 Form 10-K Annual Report.
Effective November 5, 2000, the Company adopted the Securities Exchange
Commission (SEC) Staff Accounting Bulletin No. 101, "Revenue Recognition
in Financial Satements" ("SAB 101") and recorded a charge of $77,439 as a
cumulative effect of an accounting change as of that date. Under its
previous accounting policy the Company recognized revenue for the
majority of retail sales upon, receipt of a downpayment, construction of
the home was complete, title had passed to the retail home buyer and
funds had been deposited into the Company's account. For wholesale home
sales to independant dealers, the Company recognized revenue based upon
shipment of the home since risk of loss passed to the independant dealer
at that time.
In adopting the provisions of SAB 101, the Company now recognizes retail
sales based upom occurance of all of the above conditions plus delivery
and set up of the home at the retail home buyer's site, and completion of
any other significant obligations. The Company now recognizes wholesale
home sales to independant dealers upon receiving wholesale floor plan
financing or establishing retailer credit approval for terms, shipping of
the home, and transferring title and risk of loss to the independant
dealer. As required by SAB 101 the Company has restated its previously
reported financial statements for the first quarter of 2001 to include
the effects of the accounting change and to apply the provisions of SAB
101 to the quarter.
2. Inventories
Inventories are carried at the lower of cost or market. Cost of finished
home inventories is determined on the specific identification method.
Other inventory costs are determined on a first-in, first-out basis.
Inventories at February 2, 2002 and November 3, 2001 are summarized as
follows:
February 2, November 3,
2002 2001
---------------- -----------------
Raw materials $ 533,243 $ 483,945
Work-in-process 118,830 115,240
Finished homes 6,243,141 6,586,909
Pre-owned manufactured homes 206,396 242,485
Model home furniture and other 129,596 178,332
---------------- -----------------
$7,231,206 $7,606,911
================ =================
Page 6
NOBILITY HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Three Months Ended
February 2, February 3,
2002 2001
------------ ------------
Net income $ 592,934 $ 207,390
========== ==========
Weighted average shares outstanding:
Basic 4,132,133 4,232,358
Add: common stock equivalents 17,099 --
---------- ----------
Diluted 4,149,232 4,232,358
========== ==========
Earnings per share:
Basic and Diluted $ 0.14 $ 0.04
========== ==========
3. Affiliated Entities
The amounts previously paid by TLT, Inc. to the Company have been
recorded as a gain on recovery of the fully reserved TLT, Inc. note
receivable in the consolidated financial statements. The balance of the
reserved advances at February 2, 2002 was approximately $553,000. In the
first three months of 2001, TLT, Inc. paid $100,000 to the Company.
4. Critical Accounting Policies and Estimates
The Company currently only applies judgment and estimates, which may have
a material effect on the eventual outsome of assets, liabilities,
revenues and expenses, for accounts receivable, inventory and goodwill.
The following explains the basis and the procedure for each asset account
where judgment and estimates are applied.
Revenue Recognition
The Company recognizes revenue for the majority of retail sales upon its
receipt of a down payment, completion of the home, title has passed to
the retail home buyer, funds have been deposited into the companies
account, delivery and setup of the home at the retail home buyers site,
and completion of any other significant obligations. The company
recognizes sales to independent dealers upon receiving wholesale floor
plan financing or establishing retail credit approval for terms, shipping
of the home, and transferring title and risk of loss to the independent
dealer.
Goodwill
The Company acquired in 1995, 1997 and 1998 retail sales center using the
purchase method. As a result, goodwill is reflected on the consolidated
balance sheets. A valuation based on the cash flow method was performed
and it was determined that the value of the goodwill and the net assets
in the accounts exceeded the estimated cash flow valuation. There is no
assurance that the value of the acquired company will not decrease in the
future due to changing business conditions.
Vendor Rebates
The Company receives a volume rebate based upon reaching a certain level
of purchased materials during a certain period of time. Volume rebates
are determined based upon annual purchases, and are adjusted quarterly to
determined in the accrued volume rebate is applicable.
Page 7
NOBILITY HOMES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Three months ended February 2, 2002 compared to three months ended
February 3, 2001 are as follows. As required by SAB 101 the Company has restated
its previously reported financial statements for the first quarter of 2001 to
include the effects of the accounting change and to apply the provisions of SAB
101 to the quarter.
The sales for the first quarter of fiscal 2002 increased approximately $3
million over the comparable prior year quarter. Sales to independent dealers
increased in fiscal 2002 by 51 units and retail sales increased by 24 units
primarily as a result of the timing of recognition of the sale as required under
SAB 101. The industry continues to be affected by excess retail inventory, high
repossession rate, tight retail credit standards and uncertain economic
conditions. In the near term, management anticipates continued pressure on both
sales and earnings resulting from there factors, but remain convinced that our
specific geographic market is one of the best long-term growth areas in the
country.
Gross profit reflects gross profit earned on all sales at retail as well
as the manufacturing gross profit sales of units manufactured by the Company.
Gross profit as a percentage of net sales was 25.4% in the first quarter of 2002
compared to 27.9% for the same period last year. The decrease in gross profit in
the first quarter of 2002 as a percent of net sales was primarily due to the
higher overhead costs at the manufacturing plants.
Selling, general and administrative expenses, as a percentage of net
sales, was 16.7% in the first quarter of 2002 compared to 24.1% for the same
period last year. The increase in sales in first quarter 2002 over first quarter
2001 did not have a significant impact on selling, general and administrative
expenses, because most these expenses are fixed except for accrued compensation
expenses.
The Company earned $58,650 for the first quarter of 2002 from interest on
cash equivalents as compared to $131,534 same quarter last year. The decrease in
interest income in the current quarter was a result of lower interest rates. The
Company received a $100,000 payment from TLT, Inc. during first quarter 2001.
Majestic 21 is a financing joint venture accounted for under the equity
method of accounting. The Company earned from Majestic 21 $105,384 in the first
quarter of 2001 as compared to $74,081 in the same quarter a year ago. Income
reported for Majestic 21 results from our 50% share of the equity in the
earnings of this joint venture. Income for the joint venture fluctuates due to
loan origination volume, foreclosure/repossession frequency and the severity of
loss on the re-sale of the foreclosed units. The Company believes that its
historical loss experience has been favorably affected by its ability to resell
foreclosed/repossessed units through its retail sales centers.
Income tax difference between first quarter 2002 and first quarter 2001
is primarily due to state income taxes.
As a result of the factors discussed above, net income for the first
quarter of 2002 was $592,934 or $.14 per share, compared to $207,390 or $.04 per
share in the first quarter of 2001.
Liquidity and Capital Resources
Cash and cash equivalents were $10,619,901 at February 2, 2002 compared to
$11,005,012 as of November 3, 2001. Inventories decreased to $7,231,206 at
February 2, 2002, from $7,606,911 at November 3, 2001 primarily due to the
adoption of SAB 101. Prepaid expenses increased $290,654 since fiscal year end
2001, primarily due to prepaid expenses paid on retail homes that have been
sold, but not included in sales because the contract has not been funded, or the
home has not been delivered or completely setup at the retail home buyer's site.
The Company maintains a revolving credit agreement with a major bank providing
for borrowings up to $2,500,000 with an option to increase the line to
$4,000,000. At February 2, 2002 and November 3, 2001, there were no amounts
outstanding under this agreement.
Consistent with normal practice, the Company's operations are not expected to
require significant capital expenditures during fiscal year 2002 or thereafter.
Working capital requirements for the home inventory for existing and any new
sales centers and improvements to the manufacturing facilities will be met with
internal sources.
Page 8
NOBILITY HOMES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (Continued)
Critical Accounting Policies and Estimates
The Company currently only applies judgment and estimates, which may have a
material effect on the eventual outsome of assets, liabilities, revenues and
expenses, for accounts receivable, inventory and goodwill. The following
explains the basis and the procedure for each asset account where judgment and
estimates are applied.
Revenue Recognition
The Company recognizes revenue for the majority of retail sales upon its receipt
of a down payment, completion of the home, title has passed to the retail home
buyer, funds have been deposited into the companies account, delivery and setup
of the home at the retail home buyers site, and completion of any other
significant obligations. The company recognizes sales to independent dealers
upon receiving wholesale floor plan financing or establishing retail credit
approval for terms, shipping of the home, and transferring title and risk of
loss to the independent dealer.
Goodwill
The Company acquired in 1995, 1997 and 1998 retail sales center using the
purchase method. As a result, goodwill is reflected on the consolidated balance
sheets. A valuation based on the cash flow method was performed and it was
determined that the value of the goodwill and the net assets in the accounts
exceeded the estimated cash flow valuation. There is no assurance that the value
of the acquired company will not decrease in the future due to changing business
conditions.
Vendor Rebates
The Company receives a volume rebate based upon reaching a certain level of
purchased materials during a certain period of time. Volume rebates are
determined based upon annual purchases, and are adjusted quarterly to determined
in the accrued volume rebate is applicable.
Forward Looking Statements
Certain statements in this report are forward-looking statements within
the meaning of the federal securities laws. Although the Company believes that
the expectations reflected in such forward-looking statements are based on
reasonable assumptions, there are risks and uncertainties that may cause actual
results to differ materially from expectations. These risks and uncertainties
include, but are not limited to, competitive pricing pressures at both the
wholesale and retail levels, contined excess retail inventory, changes in market
demand, changes in interest rates, adverse weather conditions that reduce sales
at retail centers, the risk of manufacturing plant shutdowns due to storms or
other factors, and the impact of marketing and cost-management programs.
Page 9
Part II. OTHER INFORMATION AND SIGNATURES
There were no reportable events for Item 1 through Item 3 and Item 5
Item 4. Submission of Matters to a Vote of Securtiy Holders.
a) The annual Meeting of the Shareholders was held on March 1, 2002.
The only matter to come before the meeting was the election of
directors.
b) The vote to elect a board of five directors was as follows:
For Against Abstain Not Voted
Terry E. Trexler 3,929,191 0 5,451 189,448
Richard C. Barberie 3,928,431 0 6,211 189,448
Robert P. Holliday 3,932,190 0 2,452 189,448
Robert P. Saltsman 3,932,025 0 2,617 189,448
Thomas W. Trexler 3,929,191 0 5,451 189,448
Item 6. Exhibits None
Page 10
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NOBILITY HOMES, INC.
DATE: March 19, 2002 By: /s/ Terry E. Trexler
-----------------------------------
Terry E. Trexler, Chairman,
President and Chief
Executive Officer
DATE: March 19, 2002 By: /s/ Thomas W. Trexler
-----------------------------------
Thomas W. Trexler, Executive
Vice President, Chief Financial
Officer
DATE: March 19, 2002 By: /s/ Lynn J. Cramer, Jr.
-----------------------------------
Lynn J. Cramer, Jr., Treasurer
and Principal Accounting Officer
Page 11