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 May 4, 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 June 12, 2002 was 4,124,513.
NOBILITY HOMES, INC.
INDEX
Page
Number
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of May 4, 2002
and November 3, 2001 3
Consolidated Statements of Income for the three
and six months ended May 4, 2002 and May 5, 2001 4
Consolidated Statements of Cash Flows for three
and six months ended May 4, 2002 and May 5, 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 6. Exhibits
Page 2
PART I. FINANCIAL INFORMATION
NOBILITY HOMES, INC.
CONSOLIDATED BALANCE SHEETS
May 4, 2002 November 3, 2001
------------------ ------------------
ASSETS (Unaudited)
- ------
Current Assets:
Cash and cash equivalents $ 10,763,348 $ 11,005,012
Accounts receivable - trade 1,270,097 374,145
Inventories 7,367,546 7,606,911
Deferred income taxes 708,600 708,600
Prepaid expenses and other current assets 388,798 261,937
-------------- --------------
Total current assets 20,498,389 19,956,605
Property, plant and equipment, net 2,906,740 2,625,597
Investment in joint venture - Majestic 21 946,680 802,175
Deferred income taxes - noncurrent 33,600 33,600
Other assets 2,353,135 2,323,134
---------- --------------
Total assets $ 26,738,544 $ 25,741,111
============== =============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 991,614 $ 1,114,244
Accrued expenses and other current liabilities 2,110,420 2,166,706
Accrued compensation 485,288 410,906
Income taxes payable 227,225 325,553
-------------- --------------
Total current liabilities 3,814,547 4,017,409
-------------- --------------
Commitments and contingent 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 20,650,749 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 22,923,997 21,723,702
-------------- --------------
Total liabilities and stockholders' equity $ 26,738,544 $ 25,741,111
============== =============
The accompanying notes are an integral part of these statements
Page 3
NOBILITY HOMES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
May 4, May 5, May 4, May 5,
2002 2001 2002 2001
--------------- --------------- -------------- ---------------
Net sales $ 8,945,759 $ 7,350,291 $ 17,189,882 $ 12,655,515
Net sales - related parties - 8,895 44,325 8,895
------------ ------------ ------------ ------------
Total net sales 8,945,759 7,359,186 17,234,207 12,664,410
Cost of goods sold (6,588,885) ( 5,254,121) (12,769,258) (9,081,133)
------------ ------------ ------------ ------------
Gross profit 2,356,874 2,105,065 4,464,949 3,583,277
Selling, general and administrative expenses (1,360,354) (1,282,967) (2,741,639) (2,560,267)
------------ ------------ ------------ ------------
Operating income 996,520 822,098 1,723,310 1,023,010
------------ ------------ ------------ ------------
Other income:
Interest income 42,272 77,382 100,923 208,916
Undistributed earnings in joint venture -
Majestic 21 39,121 40,015 144,506 114,096
Gain on recovery of TLT, Inc. note receivable 100,000 - 100,000 100,000
Miscellaneous 6,921 (251) 11,029 12,051
------------ ------------ ------------ ------------
188,314 117,146 356,458 435,063
------------ ------------ ------------ ------------
Income before provision for income taxes 1,184,834 939,244 2,079,768 1,458,073
Provision for income taxes (414,000) (322,000) (716,000) (556,000)
------------ ------------ ------------ ------------
Net income before cumulative effect adjustment 770,834 617,244 1,363,768 902,073
Cumulative effect adjustment, net of tax - - - (77,439)
------------ ------------ ------------ ------------
Net income $ 770,834 $ 617,244 $ 1,363,768 $ 824,634
============ ============ ============ ============
Weighted average shares outstanding
Basic 4,124,513 4,208,096 4,128,323 4,220,222
Diluted 4,154,393 4,208,096 4,152,034 4,220,222
Earnings per share
Basic $ .19 $ .15 $ .33 $ .20
Diluted $ .19 $ .15 $ .33 $ .20
The accompanying notes are an integral part of these financial statements
Page 4
NOBILITY HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
----------------
May 4, May 5,
2002 2001
----------------- -----------------
Cash flows from operating activities:
Net income $ 1,363,768 $ 824,634
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting change - 77,439
Depreciation and amortization 92,226 109,560
Gain on recovery of TLT, Inc. note receivable (100,000) (100,000)
Undistributed earnings in joint venture - Majestic 21 (144,506) (114,096)
Increase in cash surrender value of life insurance (30,000) (50,000)
Decrease (increase) in:
Accounts receivable - trade (895,952) 444,854
Inventories 239,365 (1,141,489)
Prepaid expenses and other current assets (126,861) (255,905)
(Decrease) increase in:
Accounts payable (122,630) (328,503)
Accrued expenses and other current liabilities (56,286) 845,667
Accrued compensation 74,382 (142,279)
Income taxes payable (98,328) 428,067
---------- -----------
Net cash provided by operating activities 195,178 597,949
---------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (373,369) (84,406)
---------- -----------
Net cash used in investing activities (373,369) (84,406)
---------- -----------
Cash flows from financing activities:
Purchase of treasury stock (163,473) (1,445,668)
Collection of TLT, Inc. note receivable 100,000 100,000
---------- -----------
Net cash used in financing activities (63,473) (1,345,668)
---------- -----------
Decrease in cash and cash equivalents (241,664) (832,125)
Cash and cash equivalents at beginning of year 11,005,012 9,828,122
---------- -----------
Cash and cash equivalents at end of quarter $10,763,348 $ 8,995,997
========== ===========
Supplemental disclosure of cash flow information
Income taxes paid $ 925,000 $ 45,000
========== ===========
The accompanying notes are an integral part of these financial statements
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 and six months ended May 4, 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 its receipt of a downpayment, completion
of the home, title had passed to the retail home buyer and funds had
been deposited into the Company's account. For sales to independent
dealers, the Company recognized revenue based upon shipment of the home
since risk of loss passed to the independent dealer at that time.
In adopting the provisions of SAB 101, the Company now recognizes retail
sales based upon 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 sales
to independent 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 independent dealer. As
required by SAB 101, the Company has restated its previously reported
financial statements for the first and second 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 May 4, 2002 and November 3, 2001 are summarized as
follows:
February 2, November 3,
2002 2001
----------------- -----------------
Raw materials $ 490,100 $ 483,945
Work-in-process 108,353 115,240
Finished homes 6,351,159 6,586,909
Pre-owned manufactured homes 334,279 242,485
Model home furniture and other 83,655 178,332
----------------- -----------------
$ 7,367,546 $ 7,606,911
================= =================
Page 6
NOBILITY HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Three Months Ended Six Months Ended
May 4, May 5, May 4, May 5,
2002 2001 2002 2001
-------------- --------------- ------------- ------------
Net income $ 770,834 $ 617,244 $ 1,363,768 $ 824,634
=========== =========== =========== ==========
Weighted average shares outstanding:
Basic 4,124,513 4,208,096 4,128,323 4,220,222
Add: common stock equivalents 29,880 - 23,711 -
----------- ----------- ----------- ----------
Diluted 4,154,393 4,208,096 4,152,034 4,220,222
=========== =========== =========== ==========
Earnings per share:
Basic and Diluted $ .19 $ .15 $ .33 $ .20
=========== =========== =========== ==========
3. Affiliated Entities
-------------------
In the first six months of 2002, TLT, Inc. paid $100,000 to the Company
against approximately $553,000 of advances that are non-interest bearing
and have been fully reserved since 1991. The amounts 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. In the first six months of 2001, TLT, Inc. paid $100,000 to
the Company.
4. Critical Accounting Policies and Estimates
------------------------------------------
The Company applies judgment and estimates, which may have a material
effect on the eventual outcome of assets, liabilities, revenues and
expenses, as it relates to 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 Company's
account, delivery and setup of the home at the retail home buyer's 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.
Page 7
NOBILITY HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Goodwill
--------
The Company acquired in 1995, 1996, 1997 and 1998 retail sales centers
using the purchase method of accounting. 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 estimated based upon annual purchases, and are adjusted quarterly if
the accrued volume rebate is applicable.
Dealer Volume Rebate
--------------------
The Company pays a volume rebate to independent dealers based upon the
dollar volume of homes purchased and paid for by the dealer in excess of
a certain specific dollar amount during a specific time period. Dealer
volume rebates are accrued when sales are recognized.
Page 8
NOBILITY HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
5. New Accounting Pronouncements
-----------------------------
FASB Statement No. 141 (FAS 141)
In June 2001, the FASB issued Statement No. 141 (FAS 141), Business
Combinations. FAS 141 supercedes APB 16,inceiJuns Combinations, and
primarily addresses the accounting for the cost of an acquired business
(i.e., the purchase price allocation), including any subsequent
adjustments to its cost. The most significant changes made by FAS 141
involve the requirement to use the purchase method of accounting for all
business combinations, thereby eliminating use of the pooling-of-
interests method along with the establishment of new criteria for
determining whether intangible assets acquired in a business combination
should be recognized separately from goodwill. FAS 141 is effective
for all business combinations (as defined in the Statement) initiated
after June 30, 2001, and for all business combinations accounted for by
the purchase method that are completed after June 30, 2001 (that is, the
date of acquisition is July 1, 2001, or later). As the Company has not
entered into any business acquisitions s
FASB Statement No. 142 (FAS 142)
In June 2001, the FASB issued Statement No. 142 (FAS 142), Goodwill and
Other Intangible Assets. FAS 142 primarily addresses the accounting for
goodwill and intangible assets subsequent to their acquisition (i.e.,
the post-acquisition accounting) and supercedes APB 17, Intangible
Assets. Under FAS 142, goodwill and indefinite lived intangible assets
will no longer be amortized and will be tested for impairment at least
annually at a reporting unit level. Additionally, the amortization
period of intangible assets with finite lives is no longer limited to
forty years. FAS 142 is effective for fiscal years beginning after
December 15, 2001, to all goodwill and other intangible assets
recognized in an entity's statement of financial position at the date,
regardless of when those assets were initially recognized. As the
Company's fiscal year began prior to December 15, 2001, the Company
anticipates adopting FAS 142 in its fiscal year 2003.
Page 9
NOBILITY HOMES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
- ---------------------
Three and six months ended May 4, 2002 compared to three and six
months ended May 5, 2001 are as follows. As required by SAB 101 the Company has
restated its previously reported financial statements for the three and six
months 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 second quarter of fiscal 2002 increased approximately
$1.6 million over the comparable prior year quarter. Sales for the first six
months of 2002 increased approximately $4.6 million over the same period last
year. Sales to independent dealers increased by 49 homes and retail sales
decreased by 6 homes in second quarter 2002 over the same quarter last year. For
the six month period, sales to independent dealers increased by 100 homes and
retail sales increased by 18 homes as compared to the same six month period of
2001. The increased sales in the second quarter of 2002 and for the six month
period in 2002 as compared to second quarter and six months in 2001 is primarily
due to the aggresive marketing program the company implemented to increase
outside sales to independent dealers.
The industry continues to be affected by excess retail inventory, a
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 these 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,
insurance commissions as well as the manufacturing gross profit from sales of
homes manufactured by the Company. Gross profit as a percentage of net sales was
26.4% in the second quarter of 2002 compared to 28.6% for the same period last
year and was 25.9% for the first six months of 2002 compared to 28.3% for the
same period last year. The decrease in gross profit as a percentage of net sales
was primarily due to the higher material cost at the manufacturing plants.
Selling, general and administrative expenses, as a percentage of net
sales, was 15.2% in the second quarter of 2002 compared to 17.4% for the same
period last year and was 15.9% for the first six months of 2002 compared to
20.2% for the same period last year. The increase in sales had a significant
impact on selling, general and administrative expenses as a percentage because
most of these expenses are fixed, except for compensation expenses.
The Company earned $42,272 for the second quarter of 2002 from interest
on cash equivalents as compared to $77,382 for the same quarter last year.
During the first six months of 2002 the Company earned $100,923 compared to
$208,916 in the same period of 2001. The decrease in interest income was a
result of lower interest rates in fiscal 2002. The Company received a $100,000
payment from TLT, Inc. during the second quarter 2002 and the first quarter of
2001. The remaining advances to TLT, Inc. of approximately $453,000 are
non-interest bearing and have been fully reserved since 1991.
Majestic 21 is a financing joint venture accounted for under the
equity method of accounting. The Company earned from Majestic 21 $39,121 in the
second quarter of 2002 as compared to $40,015 for the same quarter last year and
earned $144,506 for the first six months of 2002 as compared to $114,096 for the
same period last year. Income reported for Majestic 21 results from the
Company's 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 network of retail sales centers.
Page 10
NOBILITY HOMES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (Continued)
Income tax difference between fiscal year 2002 and 2001 is primarily
due to state income taxes.
As a result of the factors discussed above, net income for the second
quarter of 2002 was $770,834 or $.19 per share, compared to $617,244 or $.15 per
share in the second quarter of 2001. For the six month period of 2002 the net
income was $1,363,768 or $.33 per share as compared to $824,634 or $.20 per
share for the same period last year.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents were $10,763,348 at May 4, 2002 compared to
$11,005,012 as of November 3, 2001. Inventories decreased to $7,367,546 at May
4, 2002, from $7,606,911 at November 3, 2001. Account receivable trade increased
to $1,270,097 at May 4, 2002 from $374,145 at year end primarily due to
increased sales to independant dealers.
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 May 4, 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.
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 company's account,
delivery and setup of the home at the retail home buyer's 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, 1996, 1997 and 1998 retail sales centers
using the purchase method of accounting. 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.
Page 11
NOBILITY HOMES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (Continued)
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
estimated based upon annual purchases, and are adjusted quarterly if the accrued
volume rebate is applicable.
Dealer Volume Rebate
- --------------------
The Company pays a volume rebate to independent dealers based upon the
dollar volume of homes purchased and paid for by the dealer in excess of a
certain specific dollar amount during a specific time period. Dealer volume
rebates are accrued when sales are recognized.
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, continued excess retail inventory, increase in
repossessions, 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 12
Part II. OTHER INFORMATION AND SIGNATURES
There were no reportable events for Item 1 through Item 3 and Item 5
Item 6. Exhibits None
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: June 12, 2002 By: /s/ Terry E. Trexler
--------------------------------------
Terry E. Trexler, Chairman,
President and Chief
Executive Officer
DATE: June 12, 2002 By: /s/ Thomas W. Trexler
--------------------------------------
Thomas W. Trexler, Executive
Vice President, Chief Financial
Officer
DATE: June 12, 2002 By: /s/ Lynn J. Cramer, Jr.
--------------------------------------
Lynn J. Cramer, Jr., Treasurer
and Principal Accounting Officer
Page 13