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 August 3, 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 September 15, 2002 was 4,060,713.
NOBILITY HOMES, INC.
INDEX
Page
Number
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of August 3, 2002 and
November 3, 2001 3
Consolidated Statements of Income for the three and
nine months ended August 3, 2002 and August 4, 2001 4
Consolidated Statements of Cash Flows for nine months
ended August 3, 2002 and August 4, 2001 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 8
PART II. Other Information and Signatures 10
Item 6. Exhibits
Page 2
PART I. FINANCIAL INFORMATION
NOBILITY HOMES, INC.
CONSOLIDATED BALANCE SHEETS
August 3, 2002 November 3, 2001
---------------- ------------------
ASSETS (Unaudited)
- ------
Current Assets:
Cash and cash equivalents $ 10,693,861 $ 11,005,012
Accounts receivable - trade 1,146,213 374,145
Inventories 7,666,315 7,606,911
Deferred income taxes 708,600 708,600
Prepaid expenses and other current assets 471,995 261,937
------------- ------------
Total current assets 20,686,984 19,956,605
Property, plant and equipment, net 2,989,671 2,625,597
Investment in joint venture - Majestic 21 994,101 802,175
Deferred income taxes - noncurrent 33,600 33,600
Other assets 2,353,099 2,323,134
------------- ------------
Total assets $ 27,057,455 $ 25,741,111
============= ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 914,478 $ 1,114,244
Accrued expenses and other current liabilities 2,492,880 2,166,706
Accrued compensation 314,554 410,906
Income taxes payable 139,225 325,553
------------- ------------
Total current liabilities 3,861,137 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 21,379,564 19,286,981
Less treasury stock at cost, 1,293,994 and
1,220,469 shares, respectively, in 2002 and 2001 (7,348,881) (6,728,914)
------------- ------------
Total stockholders' equity 23,196,318 21,723,702
------------- ------------
Total liabilities and stockholders' equity $ 27,057,455 $ 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 Nine Months Ended
------------------ -----------------
August 3, August 4, August 3, August 4,
2002 2001 2002 2001
----------- ------------ --------------- --------------
Net sales $ 8,335,919 $ 8,737,364 $ 25,525,801 $ 21,392,879
Net sales - related parties - - 44,325 8,895
------------ ----------- -------------- -------------
Total net sales 8,335,919 8 ,737,364 25,570,126 21,401,774
Cost of goods sold (6,092,161) (6,406,189) (18,861,419) (15,487,322)
------------ ----------- -------------- -------------
Gross profit 2,243,758 2,331,175 6,708,707 5,914,452
Selling, general and administrative expenses (1,393,557) (1,424,489) (4,135,196) (3,984,756)
------------ ----------- -------------- -------------
Operating income 850,201 906,686 2,573,511 1,929,696
------------ ----------- -------------- -------------
Other income:
Interest income 50,222 79,245 151,145 288,161
Undistributed earnings in joint venture -
Majestic 21 47,421 57,808 191,927 171,904
Gain on recovery of TLT, Inc. note receivable 100,000 - 200,000 100,000
Miscellaneous 63,971 36,657 75,000 48,708
------------ ----------- -------------- -------------
261,614 173,710 618,072 608,773
------------ ----------- -------------- -------------
Income before provision for income taxes 1,111,815 1,080,396 3,191,583 2,538,469
Provision for income taxes (383,000) (429,000) (1,099,000) (985,000)
------------ ----------- ----------- -------------
Net income before cumulative effect adjustment 728,815 651,396 2,092,583 1,553,469
Cumulative effect adjustment, net of tax - - - (77,439)
------------ ----------- -------------- -------------
Net income $ 728,815 $ 651,396 $ 2,092,583 $ 1,476,030
============ =========== ============== =============
Weighted average shares outstanding
Basic 4,120,651 4,184,338 4,125,766 4,210,691
Diluted 4,145,308 4,184,338 4,149,601 4,210,691
Earnings per share
Basic $ .18 $ .16 $ .51 $ .35
Diluted $ .18 $ .16 $ .50 $ .35
The accompanying notes are an integral part of these financial statements
Page 4
NOBILITY HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
-----------------
August 3, August 4,
2002 2001
---------------- ---------------
Cash flows from operating activities:
Net income $ 2,092,583 $ 1,476,030
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting change - 77,439
Depreciation and amortization 153,375 164,336
Gain on recovery of TLT, Inc. note receivable (200,000) (100,000)
Undistributed earnings in joint venture - Majestic 21 (191,927) (171,904)
Increase in cash surrender value of life insurance (45,000) (74,997)
Decrease (increase) in:
Accounts receivable - trade (772,068) (502,778)
Inventories (59,404) 243,058
Prepaid expenses and other current assets (210,058) (186,701)
(Decrease) increase in:
Accounts payable (199,766) 26,880
Accrued expenses and other current liabilities 326,174 457,624
Accrued compensation (96,352) (61,455)
Income taxes payable (186,328) 546,993
----------- ------------
Net cash provided by operating activities 611,229 1,894,525
----------- ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (502,413) (192,303)
----------- ------------
Net cash used in investing activities (502,413) (192,303)
----------- ------------
Cash flows from financing activities:
Purchase of treasury stock (619,967) (1,445,668)
Collection of TLT, Inc. note receivable 200,000 100,000
----------- ------------
Net cash used in financing activities (419,967) (1,345,668)
----------- ------------
Decrease in cash and cash equivalents (311,151) 356,554
Cash and cash equivalents at beginning of year 11,005,012 9,828,122
----------- ------------
Cash and cash equivalents at end of quarter $ 10,693,861 $ 10,184,676
=========== ============
Supplemental disclosure of cash flow information
Income taxes paid $ 1,596,000 $ 438,000
=========== ============
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 nine months ended August 3, 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 account-
ing 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, second and third 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 August 3, 2002 and November 3, 2001 are summarized as follows:
August 3, November 3,
2002 2001
-------------- ---------------
Raw materials $ 534,460 $ 483,945
Work-in-process 109,875 115,240
Finished homes 6,542,209 6,586,909
Pre-owned manufactured homes 399,984 242,485
Model home furniture and other 79,787 178,332
----------- -----------
$ 7,666,315 $ 7,606,911
=========== ===========
Page 6
NOBILITY HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Three Months Ended Six Months Ended
August 3, August 4, August 3, August 4,
2002 2001 2002 2001
------------- -------------- --------------- --------------
Net income $ 728,815 $ 651,396 $ 2,092,583 $ 1,476,030
========== =========== ============ ===========
Weighted average shares outstanding:
Basic 4,120,651 4,184,338 4,125,766 4,210,691
Add: common stock equivalents 24,657 - 23,835 -
---------- ----------- ------------ -----------
Diluted 4,145,308 4,184,338 4,149,601 4,210,691
========== =========== ============ ===========
Earnings per share:
Basic and Diluted $ .18 $ .16 $ .50 $ .35
========== =========== =========== ===========
3. Affiliated Entities
-------------------
In the first nine months of 2002, TLT, Inc. paid $200,000 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
nine 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, Business 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 since June 30, 2001, FAS 141 has had no impact.
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 nine months ended August 3, 2002 compared to three and nine
months ended August 4, 2001 are as follows. As required by SAB 101 the Company
has restated its previously reported financial statements for the three and nine
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 third quarter of fiscal 2002 decreased approximately
4.6 percent over the comparable prior year quarter. Sales for the first nine
months of 2002 increased approximately 19.5 percent or $4.1 million over the
same period last year. Sales to independent dealers increased by 30 homes and
retail sales decreased by 40 homes in third quarter 2002 over the same quarter
last year. For the nine month period, sales to independent dealers increased by
128 homes and retail sales decreased by 22 homes as compared to the same nine
month period of 2001. The increased sales for the nine month period in 2002 as
compared to the first nine months in 2001 is primarily due to the aggresive
marketing program the company implemented to increase outside sales to
independent dealers.
Sales for the third quarter 2002 continued to be impacted by the very
competitive market caused by the industry's excess retail inventory, high
repossession rate, tight retail credit standards and uncertain economic
conditions in our market area. 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
26.9% in the third quarter of 2002 compared to 26.7% for the same period last
year and was 26.2% for the first nine months of 2002 compared to 27.6% for the
same period last year.
Selling, general and administrative expenses, as a percentage of net
sales, was 16.7% in the third quarter of 2002 compared to 16.3% for the same
period last year and was 16.2% for the first nine months of 2002 compared to
18.6% for the same period last year.
The Company earned $50,222 for the third quarter of 2002 from interest
on cash equivalents as compared to $79,245 for the same quarter last year.
During the first nine months of 2002 the Company earned $151,145 compared to
$288,161 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 and third quarter 2002 and the first
quarter of 2001. The remaining advances to TLT, Inc. of approximately $353,000
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 $47,421 in the
third quarter of 2002 as compared to $57,808 for the same quarter last year and
earned $191,927 for the first nine months of 2002 as compared to $171,904 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 third
quarter of 2002 was $728,815 or $.18 per share, compared to $651,396 or $.16 per
share in the third quarter of 2001. For the nine month period of 2002 the net
income was $2,092,583 or $.50 per share as compared to $1,476,030 or $.35 per
share for the same period last year.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents were $10,693,861 at August 3, 2002 compared
to $11,005,012 as of November 3, 2001. Inventories increased to $7,666,315 at
August 3, 2002, from $7,606,911 at November 3, 2001. Account receivable trade
increased to $1,146,213 at August 3, 2002 from $374,145 at year end primarily
due to increased sales to independent 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 August 3, 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 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. Exhibit
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
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: September 16, 2002 By: /s/ Terry E. Trexler
----------------------------------
Terry E. Trexler, Chairman,
President and Chief
Executive Officer
DATE: September 16, 2002 By: /s/ Thomas W. Trexler
----------------------------------
Thomas W. Trexler, Executive
Vice President, Chief Financial
Officer
DATE: September 16, 2002 By: /s/ Lynn J. Cramer, Jr.
----------------------------------
Lynn J. Cramer, Jr., Treasurer
and Principal Accounting Officer
Page 13
Written Statement of the Chief Executive Officer
Pursuant to 18 U.S.C. ss. 1350
Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the
undersigned Chairman and Chief Executive Officer of Nobility Homes, Inc. (the
"Company"), hereby certify that:
1. the Quarterly Report on Form 10-Q of the Company for the quarter ended
August 3, 2002 (the "Report") fully complies with the requirements of Section
13(a) of the Securities Exchange Act of 1934; and
2. that information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
NOBILITY HOMES, INC.
DATE: September 16, 2002 By: /s/ Terry E. Trexler
----------------------------------
Terry E. Trexler, Chairman,
President and Chief
Executive Officer
================================================================================
Written Statement of the Chief Financial Officer
Pursuant to 18 U.S.C. ss. 1350
Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the
undersigned Chairman and Chief Financial Officer of Nobility Homes, Inc. (the
"Company"), hereby certify that:
1. the Quarterly Report on Form 10-Q of the Company for the quarter ended
August 3, 2002 (the "Report") fully complies with the requirements of Section
13(a) of the Securities Exchange Act of 1934; and
2. that information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
NOBILITY HOMES, INC.
DATE: September 16, 2002 By: /s/ Thomas W. Trexler
----------------------------------
Thomas W. Trexler, Executive
Vice President, Chief Financial
Officer
Page 14