UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2004
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 .
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes ; No X .
The number of shares of the registrant's common stock, par value $0.10,
outstanding as of March 15, 2004 was 4,011,221.
NOBILITY HOMES, INC.
INDEX
Page
Number
PART I.
Financial Information
Item 1.
Financial Statements (Unaudited)
Consolidated Balance Sheets as of January 31, 2004 and
November 1, 2003 3
Consolidated Statements of Income and Comprehensive
Income for the three months ended January 31, 2004 and
February 1, 2003 4
Consolidated Statements of Cash Flows for the three
months ended January 31, 2004 and February 1, 2003 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 10
Item 3.
Quantitative and Qualitative Disclosures About Market Risk 12
Item 4.
Controls and Procedures 12
PART II.
Other Information
Item 4. 13
Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
2
NOBILITY HOMES, INC.
CONSOLIDATED BALANCE SHEETS
January 31, November 1,
2004 2003
----------------- ------------------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 10,305,550 $ 10,641,748
Short-term investments 369,556 342,550
Accounts receivable - trade 814,769 2,096,128
Inventories 7,431,676 6,557,659
Deferred income taxes 477,541 485,716
Prepaid expenses and other current assets 829,205 501,014
-------------- -------------
Total current assets 20,228,297 20,624,815
Property, plant and equipment, net 3,283,286 3,136,506
Long-term investments 5,737,846 5,249,825
Investment in joint venture - Majestic 21 1,274,806 1,203,804
Deferred income taxes - noncurrent 15,050 15,050
Other assets 1,898,882 2,474,905
-------------- -------------
Total assets $ 32,438,167 $ 32,704,905
============== =============
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 1,077,772 $ 1,484,997
Accrued expenses and other current liabilities 2,974,117 2,988,131
Accrued compensation 512,798 524,784
Income taxes payable 647,675 890,675
-------------- -------------
Total current liabilities 5,212,362 5,888,587
-------------- -------------
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 8,612,719 8,613,640
Retained earnings 25,883,143 25,500,362
Accumulated other comprehensive income 54,592 35,516
Less treasury stock at cost, 1,353,686 and
1,354,663 shares, respectively, in 2004 and 2003 (7,861,140) (7,869,691)
-------------- -------------
Total stockholders' equity 27,225,805 26,816,318
-------------- -------------
Total liabilities and stockholders' equity $ 32,438,167 $ 32,704,905
============== =============
The accompanying notes are an integral part of these financial statements
3
NOBILITY HOMES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
------------------
January 31, February 1,
2004 2003
------------------ ----------------
Net sales $ 10,198,241 $ 8,482,415
Cost of goods sold (7,611,701) (6,258,985)
-------------- ------------
Gross profit 2,586,540 2,223,430
Selling, general and administrative expenses (1,584,529) (1,385,043)
-------------- ------------
Operating income 1,002,011 838,387
-------------- ------------
Other income:
Interest income 88,461 40,297
Undistributed earnings in joint venture - Majestic 21 71,002 21,567
Miscellaneous income 29,407 9,333
-------------- ------------
188,870 71,197
-------------- ------------
Income before provision for income taxes 1,190,881 909,584
Provision for income taxes (407,000) (309,000)
-------------- ------------
Net income 783,881 600,584
Other comprehensive income, net of tax
Unrealized investment gain 19,076 -
-------------- ------------
Comprehensive income $ 802,957 $ 600,584
============== ============
Average shares outstanding
Basic 4,010,255 4,014,246
Diluted 4,063,875 4,036,337
Earnings per share
Basic $ 0.19 $ 0.15
Diluted $ 0.19 $ 0.15
Dividends per common share $ 0.10 $ -
The accompanying notes are an integral part of these financial statements
4
NOBILITY HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
------------------
January 31, February 1,
2004 2003
----------------- ----------------
Cash flows from operating activities:
Net income $ 783,881 $ 600,584
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 57,759 49,569
Undistributed earnings in joint venture - Majestic 21 (71,002) (21,566)
Increase in cash surrender value of life insurance (21,001) (15,000)
Decrease (increase) in:
Accounts receivable - trade 1,281,359 145,370
Inventories (874,017) (583,118)
Prepaid expenses and other current assets (328,191) (198,812)
(Decrease) increase in:
Accounts payable (407,225) (199,234)
Accrued expenses and other current liabilities (14,014) (79,453)
Accrued compensation (11,986) (268,856)
Income taxes payable (243,000) 282,101
------------- -------------
Net cash provided by (used in) operating activities 152,563 (288,415)
------------- -------------
Cash flows from investing activities:
Purchase of property, plant and equipment (204,539) (54,820)
------------- -------------
Net cash used in investing activities (204,539) (54,820)
------------- -------------
Cash flows from financing activities:
Purchase of investments (487,777) -
Payment of cash dividends (401,100) -
Proceeds from repayment of receivable from officer 597,024 -
Proceeds from exercise of employee stock options 7,630 -
Purchase of treasury stock - (43,750)
------------- -------------
Net cash used in financing activities (284,222) (43,750)
------------- -------------
Decrease in cash and cash equivalents (336,198) (386,985)
Cash and cash equivalents at beginning of quarter 10,641,748 12,481,711
------------- -------------
Cash and cash equivalents at end of quarter $ 10,305,550 $ 12,094,726
============= =============
Supplemental disclosure of cash flow information
Interest Paid $ - $ -
============= =============
Income taxes paid $ 650,000 $ 333
============= =============
The accompanying notes are an integral part of these financial statements
5
NOBILITY HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements for the three
months ended January 31, 2004 and February 1, 2003 have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission for Form 10-Q.
Accordingly, they do not include all the information and footnotes required by
accounting principles generally accepted in the United States of America for
complete financial statements.
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 January 31, 2004 are not necessarily indicative of the results of
the full fiscal year.
The condensed consolidated financial statements included in this report should
be read in conjunction with the financial statements and notes thereto included
in the Registrant's November 1, 2003 Annual Report on Form 10-K.
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 January 31,
2004 and November 1, 2003 are summarized as follows:
January 31, November 1,
2004 2003
----------------- ----------------
(Unaudited)
Raw materials $ 703,547 $ 680,036
Work-in-process 147,126 109,947
Finished homes 6,044,611 5,272,867
Pre-owned manufactured homes 436,901 401,728
Model home furniture and other 99,491 93,081
----------------- ----------------
$ 7,431,676 $ 6,557,659
================= ================
6
NOBILITY HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Accounting for Stock Based Compensation
---------------------------------------
At January 31, 2004, the Company had a stock incentive plan (the "Plan"),
which authorizes the issuance of options to purchase common stock. The
Company has adopted the disclosure-only provisions of FAS 123, Accounting
for Stock-Based Compensation, as amended by FAS 148, Accounting for Stock
Based Compensation-Transition and Disclosure, an amendment of FASB
Statement No. 123, but accounts for the plan under the recognition and
measurement principles of Accounting Principles Board Opinion No. 25 and
related interpretations. No stock-based employee compensation cost is
reflected in net income, as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock on
the date of grant. If the Company had elected to recognize compensation
expense for stock options based on the fair value at grant date, consistent
with the method prescribed by FAS 123, net income and earnings per share
would have been reduced to the pro forma amounts as follows:
Three Months Ended
------------------
January 31, February 1,
2004 2003
---------------- ----------------
Net Income, as reported $ 783,881 $ 600,584
Deduct: Total stock-based employee compensation
determined under fair value based method for all
awards, net of related tax effects (4,988) (2,533)
---------------- ----------------
Pro forma net income $ 778,893 $ 598,051
================ ================
Earnings per share
Basic - as reported $ 0.19 $ 0.15
Basic - pro forma $ 0.19 $ 0.15
Earnings per share
Diluted - as reported $ 0.19 $ 0.15
Diluted - pro forma $ 0.19 $ 0.15
7
NOBILITY HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Earnings Per Share
------------------
Three Months Ended
January 31, August 3,
2004 2002
------------------- --------------------
Net income $ 783,881 $ 600,584
============ ===========
Weighted average shares outstanding:
Basic 4,010,255 4,014,246
Add: common stock equivalents 53,620 22,091
------------ -----------
Diluted 4,063,875 4,036,337
============ ===========
Earnings per share:
Basic $ 0.19 $ 0.15
============ ===========
Diluted $ 0.19 $ 0.15
============ ===========
5. Critical Accounting Policies and Estimates
------------------------------------------
The Company applies judgment and estimates, which may have a material effect in
the eventual outcome 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 material estimates are
applied.
Revenue Recognition
The Company recognizes revenue for the majority of retail sales upon the
occurrence of all the following:
o its receipt of a down payment,
o the home buyer enters into a installment sales contract with a
third party,
o construction of the home is complete,
o title having passed to the retail home buyer,
o full sales price of home having been collected and deposited
into the Company's account,
o the home having been delivered and set up at the retail home
buyer's site, and
o completion of any other significant obligations.
The Company recognizes wholesale home 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. For wholesale shipments to independent retailers, the
Company has no obligation to set up the home or to complete any other
significant obligations.
Goodwill
Between 1995 and 1998 the Company acquired retail sales centers using the
purchase method of accounting. As a result, goodwill is reflected on the
consolidated balance sheets. A valuation was performed by the Company and it was
determined that the estimated fair value of the goodwill in the accounts
exceeded its book value. There is no assurance that the value of the acquired
sales centers will not decrease in the future due to changing business
conditions.
Vendor Rebates
The Company receives volume rebates from its vendors based upon reaching a
certain level of purchased materials during a specified period of time. Volume
rebates are estimated based upon annual purchases, and are adjusted quarterly if
the accrued volume rebate is applicable.
8
NOBILITY HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Dealer Volume Rebates
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.
2. Recent Accounting Pronouncements
--------------------------------
FASB Interpretation No. 46 (FIN 46)
Financial Accounting Standards Board Interpretation ("FIN") 46, Consolidation of
Variable Interest Entities, was issued in January 2003. FIN 46 was revised and
reissued in December 2003 with an additional exception for entities that are
deemed to be a business need not be evaluated by a reporting enterprise to
determine if the entity is a variable interest entity under the requirements of
FIN 46. FIN 46 requires certain variable interest entities to be consolidated by
the primary beneficiary of the entity if the equity investors in the entity do
not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 will be
effective for any variable interest entities of the Company in the second
quarter of fiscal 2004. The Company is in the process of evaluating the impact
of the adoption of FIN 46; however, the Company does not believe that the
consolidation of any potential variable interest entitles would be required nor
would it have a material impact on its consolidated financial statements.
9
NOBILITY HOMES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
- ---------------------
For the first quarters ended January 31, 2004 and February 1, 2003, results of
operations are as follows. Total net sales in first quarter 2004 increased 20%
to $10,198,241 compared to $8,482,415 in the first quarter 2003. The increased
sales in first quarter of 2004 was primarily due to the increase in sales to
outside dealers coupled with an increase in Prestige same store revenues.
Industry shipments in Florida, our primary market, in the latest twelve-month
period were down approximately 5%. In spite of high unemployment, tight retail
credit standards, high repossession rate and uncertain economic conditions in
our country, management expects the demand for our homes to continue. In the
near term management anticipates continued pressure on both sales and earnings
resulting from these factors, plus record price increases in lumber, oriented
strand board (OSB), steel and oil-related products and services.
Gross profit as a percentage of net sales was 25.4% in first quarter 2004
compared to 26.2% in first quarter 2003. The decline in gross profit, as a
percentage of sales, in first quarter 2004 was primarily due to higher material
costs, primarily in lumber and oriented strand board (OSB), steel and oil-rated
products and services.
Selling, general and administrative expenses as a percent of net sales were
15.5% in first quarter of 2004 compared to 16.3% in the first quarter of 2003.
The decrease in selling, general and administrative expenses, as a percent of
net sales, resulted from the increase in sales which had an impact on selling,
general and administrative expenses as a percentage because most of these
expenses are fixed, except for compensation expenses.
Other income for the first quarter of 2004 was $188,870 of which $88,461 was
from interest on cash equivalents and investments and $71,002 was from
Nobility's equity in the earnings from the Majestic 21 joint venture. In the
first quarter of 2003 other income was $71,197 of which $40,297 was from
interest on cash equivalents and investments and $21,567 was from Nobility's
equity in the earnings from the Majestic 21 joint venture. The increase in
interest income was primarily due to a change in the investment portfolio to
long-term marketable securities to obtain a higher yield. Income reported for
Majestic 21 results from the Company's 50% share in the equity in the earnings
of this joint venture. Income for the joint venture fluctuated due to higher
loan origination volume, and decreased foreclosure/repossession activity. The
Company believes that its historical loss experience has been favorably impacted
by its ability to resell foreclosed/repossessed homes through its network of
retail sales centers. Majestic 21 is a financing joint venture accounted for
under the equity method of accounting.
As a result of the factors discussed above, earnings for the first quarter of
2004 were $783,881 or $.19 per basic and diluted share compared to $600,584 or
$.15 per basic and diluted share for the first quarter 2003.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents were $10,305,550 at January 31, 2004 compared to
$10,641,748 at November 1, 2003. Short and long term investments were $6,107,402
at January 31, 2004 compared to $5,592,375 at November 1, 2003. Working capital
was $15,015,935 at January 31, 2004 as compared to $14,736,228 at November 1,
2003. Nobility owns the entire inventory for its Prestige retail sales centers
and does not incur any third party floor plan financing expenses. Inventories
increased to $7,431,676 at January 31, 2004, from $6,557,659 at November 1, 2003
primarily due to an increase in the number of homes in inventory at the Prestige
retail sales centers. Accounts receivable trade decreased $1,281,359 to $814,769
at January 31, 2004 from $2,096,128 at November 1, 2003.
Nobility maintains a revolving credit agreement with a major bank providing for
borrowing up to $4,000,000. At January 31, 2004 and November 1, 2003, there were
no amounts outstanding under this agreement.
Consistent with normal practices, Nobility's operations are not expected to
require significant capital expenditures during fiscal 2004. Working capital
requirements for any increase in the new home inventory for existing and any new
retail sales centers will be met with internal sources.
10
NOBILITY HOMES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Critical Accounting Policies and Estimates
- ------------------------------------------
The Company applies judgment and estimates, which may have a material effect in
the eventual outcome 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 the
occurrence of all the following:
o its receipt of a down payment,
o the home buyer enters into a installment sales contract with a
third party,
o construction of the home is complete,
o title having passed to the retail home buyer,
o full sales price of home having been collected and deposited
into the Company's account,
o the home having been delivered and set up at the retail home
buyer's site, and
o completion of any other significant obligations.
The Company recognizes wholesale home 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. For wholesale shipments to independent retailers, the
Company has no obligation to set up the home or to complete any other
significant obligations.
Goodwill
Between 1995 and 1998 the Company acquired retail sales centers using the
purchase method of accounting. As a result, goodwill is reflected on the
consolidated balance sheets. A valuation was performed by the Company and it was
determined that the estimated fair value of the goodwill in the accounts
exceeded its book value. There is no assurance that the value of the acquired
sales centers will not decrease in the future due to changing business
conditions.
Vendor Rebates
The Company receives volume rebates from its vendors based upon reaching a
certain level of purchased materials during a specified period of time. Volume
rebates are estimated based upon annual purchases, and are adjusted quarterly if
the accrued volume rebate is applicable.
Dealer Volume Rebates
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, including our statement that working
capital requirements will be met with internal sources. Although Nobility
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, increasing material costs, increase in
repossessions, changes in market demand, changes in interest rates, availability
of financing for retail and wholesale purchasers, consumer confidence, 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.
11
NOBILITY HOMES, INC.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We do not engage in investing in or trading market risk sensitive
instruments. We also do not purchase, for investing, hedging, or for
purposes "other than trading", instruments that are likely to expose us to
market risk, whether interest rate, foreign currency exchange, commodity
price or equity price risk. We have not entered into any forward or futures
contracts, purchased any options or entered into any interest rate swaps.
We do not currently have any indebtedness as of January 31, 2004. If we
were to borrow from our revolving line of credit facility, we would be
exposed to changes in interest rates. Under our current policies, we do not
use interest rate derivative instruments to manage exposure to interest
rate changes.
Item 4. Controls and Procedures
a. Evaluation of Disclosure Controls and Procedures. The Company's Chief
Executive Officer and Chief Financial Officer have evaluated the
effectiveness of the Company's disclosure controls and procedures (as
such term is defined in Rules 13a - 14(c) and 15d-14(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") as
of January 31, 2004 (the "Evaluation Date"). Based on such evaluation,
such officers have concluded that, as of the Evaluation Date, the
Company's disclosure controls and procedures are effective in alerting
them on a timely basis to material information relating to the Company
(including its consolidated subsidiaries) required to be included in
the Company's reports filed or submitted under the Exchange Act. Since
the Evaluation Date there have not been any significant changes in the
Company's internal controls or in other factors that could
significantly affect such controls.
12
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 Security Holders
a. The annual Meeting of the Shareholders was held on February 27, 2004.
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 2,868,150 0 15,644 1,127,427
Richard C. Barberie 2,845,585 0 38,209 1,127,427
Robert P. Holliday 2,880,794 0 6,000 1,127,427
Robert P. Saltsman 2,877,794 0 6,000 1,127,427
Thomas W. Trexler 2,868,150 0 12,644 1,127,427
Item 6. Exhibits
31. (a) Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or
15d-14(a) under the Securities Exchange Act of 1934
(b) Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a)
under the Securities Exchange Act of 1934
32. (a) Written Statement of Chief Executive Officer Pursuant to 18
U.S.C. ss.1350
(b) Written Statement of Chief Financial Officer Pursuant to 18
U.S.C. ss.1350
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 15, 2004 By: /s/ Terry E. Trexler
----------------------------------------
Terry E. Trexler, Chairman,
President and Chief Executive Officer
DATE: March 15, 2004 By: /s/ Thomas W. Trexler
----------------------------------------
Thomas W. Trexler, Executive Vice
President,
and Chief Executive Officer
DATE: March 15, 2004 By: /s/ Lynn J. Cramer, Jr.
----------------------------------------
Lynn J. Cramer, Jr., Treasurer
and Principal Accounting Officer
13