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 January 30, 1999
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 16, 1999 was 4,861,491.
Page 2
NOBILITY HOMES, INC.
INDEX
Page
Number
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of January 30, 1999
and October 31, 1998 3
Consolidated Statements of Income for the three months
ended January 30, 1999 and January 31, 1998 4
Consolidated Statements of Cash Flows for three months
ended January 30, 1999 and January 31, 1998 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 11
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports of Form 8-K
Page 3
PART I. FINANCIAL INFORMATION
NOBILITY HOMES, INC.
CONSOLIDATED BALANCE SHEETS
January 30, 1999 October 31, 1998
---------------- ----------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 4,599,720 $ 5,891,994
Accounts receivable - trade 643,937 535,615
Inventories 11,273,806 10,391,340
Deferred income taxes 127,000 127,000
Prepaid expenses and other current assets 355,266 324,928
---------- ----------
Total current assets 16,999,729 17,270,877
Property, plant and equipment, net 2,060,664 2,037,140
Investment in joint venture - Nobility 21 450,530 428,938
Deferred income taxes - noncurrent 720,200 720,200
Other assets 2,336,934 2,346,051
---------- ----------
Total assets $ 22,568,057 $ 22,803,206
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,270,788 $ 1,836,608
Accrued expenses and other current liabilities 807,628 1,367,916
Accrued compensation 343,407 583,889
Income taxes payable 779,050 341,050
---------- ----------
Total current liabilities 3,200,873 4,129,463
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.10 par value, 500,000
shares authorized, none issued - -
Common stock, $.10 par value, 10,000,000
shares authorized in 1999 and 1998; 5,364,907 and
4,922,087 shares issued, respectively, in 1999 and 1998 536,491 492,209
Additional paid in capital 8,629,146 2,197,185
Retained earnings 12,467,668 18,225,666
Less treasury stock at cost, 503,416 and
465,836 shares, respectively, in 1999 and 1998 (2,266,121) (2,241,317)
---------- ----------
Total stockholders' equity 19,367,184 18,673,743
----------- ----------
Total liabilities and stockholders' equity $ 22,568,057 $ 22,803,206
=========== ==========
Page 4
NOBILITY HOMES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
January 30, January 31,
1999 1998
----------- -----------
Net sales $ 10,080,257 $ 10,589,052
Net sales - related parties 26,645 16,913
---------- ----------
Total net sales 10,106,902 10,605,965
Cost of goods sold (7,312,538) (7,895,612)
---------- ----------
Gross profit 2,794,364 2,710,353
Selling, general and administrative expenses (1,706,493) (1,503,891)
---------- ----------
Operating income 1,087,871 1,206,462
---------- ----------
Other income:
Interest income 52,298 63,819
Undistributed earnings in joint venture - Nobility 21 21,592 25,852
Miscellaneous income 3,484 3,182
---------- ----------
77,374 92,853
---------- ----------
Income before provision for income taxes 1,165,245 1,299,315
Provision for income taxes (447,000) (499,000)
---------- ---------
Net income $ 718,245 $ 800,315
========== ==========
Weighted average shares outstanding (1)
Basic 4,863,039 4,899,051
Diluted 4,941,227 4,941,886
Earnings per share (1)
Basic $ .15 $ .16
Diluted $ .15 $ .16
(1) Restated to reflect 10% stock dividend paid on February 19, 1999
NOBILITY HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
January 30, January 31,
1999 1998
----------- -----------
Cash flows from operating activities:
Net income $ 718,245 $ 800,315
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 59,091 63,649
Undistributed earnings in joint venture - Nobility 21 (21,592) (25,853)
(Increase) decrease in:
Accounts receivable - trade (108,322) (621,149)
Inventories (882,466) (4,426)
Prepaid expenses and other current assets (30,338) (814)
Increase (decrease) in:
Accounts payable (565,820) (276,130)
Accrued expenses and other current liabilities (560,288) 70,910
Accrued compensation (240,482) (132,865)
Income taxes payable 438,000 242,071
---------- ---------
Net cash provided by (used in) operating activities (1,193,972) 115,708
---------- ---------
Cash flows from investing activities:
Purchase of equipment (73,498) (54,064)
---------- ---------
Net cash used in investing activities (73,498) (54,064)
---------- ---------
Cash flows from financing activities:
Purchase of treasury stock (24,804) -
--------- ---------
Net cash used in financing activities (24,804) -
--------- ---------
(Decrease) Increase in cash and cash equivalents (1,292,274) 61,644
Cash and cash equivalents at beginning of quarter 5,891,994 6,293,924
---------- ---------
Cash and cash equivalents at end of quarter $ 4,599,720 $ 6,355,568
========== =========
Supplemental disclosure of cash flow information
Income taxes paid $ 155,000 $ 275,000
========== =========
Page 6
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 January 30, 1999 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 October 31, 1998 Form 10-K Annual Report.
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 30, 1999 and October 31, 1998 are
summarized as follows:
January 30, October 31,
1999 1998
----------- -----------
Raw Materials $ 629,738 $ 587,057
Work-in-process 88,280 101,268
Finished homes 9,337,244 8,525,402
Pre-owned manufactured homes 598,555 621,017
Model home furniture and other 619,989 556,596
---------- ----------
$ 11,273,806 $ 10,391,340
========== ==========
3. Earnings Per Share
Effective for the quarter ended January 31, 1998, the Company adopted
Statement on Financial Accounting Standards No. 128, Earnings Per Share
(SFAS 128). SFAS 128 simplifies the standards for computing earnings
per share by replacing the presentation of primary earnings per share
with a presentation of basic earnings per share. Basic earnings per
share is calculated by dividing net income by the weighted-average
number of shares outstanding. Diluted earnings per share is calculated
by dividing net income by the weighted-average number of shares
outstanding, adjusted for dilutive potential common shares. The
following reconciliation details the numerators and denominators used
to calculate basic and diluted earnings per share for the respective
periods:
Page 7
NOBILITY HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Three Months Ended
January 30, January 31,
1999 1998
---------- -----------
Net Income $ 718,245 $ 800,315
========= =========
Weighted average shares outstanding:
Basic 4,863,039 4,899,051
Add: common stock equivalents 78,188 42,835
--------- ---------
Diluted 4,941,227 4,941,886
========== =========
Earnings per share:
Basic and Diluted $ 0.15 $ 0.16
========= =========
4. Stock Split
On January 6, 1998, the Company's Board of Directors authorized a
three-for-two stock split in the form of a 50% stock dividend payable
February 20, 1998 to stockholders of record on January 30, 1998. This
resulted in the issuance of 1,485,297 additional shares of common
stock. Share and per share data for all periods presented herein have
been adjusted to give effect to the 50% stock split.
5. Stock Dividend
On December 15, 1998, the Company's Board of Directors declared a 10%
stock dividend which was paid on February 19, 1999 to stockholders of
record on January 15, 1999. This resulted in the issuance of 442,820
additional shares of common stock. The dividend was charged to retained
earnings in the amount of approximately $6.5 million, which was based
upon the fair value of the Company's common stock. All references to
weighted-average shares outstanding and per share amounts included
herein reflect the 10% stock dividend and its retroactive effect.
Page 8
NOBILITY HOMES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Net sales in the first quarter of 1999 were $10,107,000 as compared to
$10,606,000 for the first quarter of 1998. The decrease in sales for the first
three months of 1999 was primarily due to the additional stocking of $1.2
million of new inventory homes for the Company's seven new retail sales centers
that were added in the fourth quarter of 1998.
Gross profit in the first quarter of 1999 as a percentage of net sales
was 27.6 percent compared to 25.5 percent for the same period last year. The
increase in gross profit in the first quarter of 1999 was primarily a result of
improvements in the gross margins at the retails sales centers, caused by
selling a mix of higher priced homes.
Selling, general and administrative expenses, as a percentage of net
sales, was 16.9 percent in the first quarter of 1999 compared to 14.2 percent
for the same period last year. The increase in first quarter of 1999 selling,
general and administrative expenses as a percent of net sales was due to
increased overhead from the seven new retail sales centers added during the
fourth quarter of 1998.
Other income for first quarter 1999 was $77,000 of which $52,000 was
from interest on short term investments and $22,000 was undistributed earnings
from the Company's financing joint venture, Nobility 21. This compares to
$93,000 in the first quarter of fiscal year 1998, of which $64,000 was from
short term interest and $26,000 was undistributed earnings from Nobility 21.
As a result of the factors discussed above, net income for the first
quarter of 1999 was $718,000 or $.15 per share, compared to $800,000 or $.16 per
share in the first quarter of 1998. Earnings per share for the first quarter of
1998 has been restated to reflect a 10% stock dividend paid on February 19,
1999.
Liquidity and Capital Resources
Cash and cash equivalents were $4,600,000 at January 31, 1999 compared to
$5,892,000 as of October 31, 1998. Working capital increased to $13,799,000 at
January 31, 1999 from $13,141,000 at October 31, 1998. Inventories increased to
$11,274,000 in the first quarter of 1999 from $10,391,000 at the fourth quarter
of 1998. The increase in inventory was due to the additional $1.2 million of
homes manufactured in the first quarter of 1999 which were used to stock the
new retail sales centers added in the fourth quarter of 1998.
The Company maintains a revolving credit agreement with a major bank
providing for borrowings up to $4.0 million. A second revolving line of credit
agreement with another bank provides for borrowings up to $1.5 million. These
two agreements provide the Company with an additional $5.5 million of working
capital for use in connection with its overall operations. At January 30, 1999
and October 31, 1998, there were no amounts outstanding under either of these
agreements.
Consistent with normal practice, the Company's operations are not expected
to require significant capital expenditures during fiscal year 1999. Working
capital requirements for the home inventory for new and existing sales centers
will be met with internal sources.
Page 9
NOBILITY HOMES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (Continued)
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, changes in market demand, 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.
Year 2000 Issue
Many existing computer programs use only two digits to identify a year
in the date field. As the century date change occurs, these programs may
recognize the year 2000 as 1900, or not at all. If not corrected, many computer
systems and applications could fail or create erroneous results by or at the
year 2000 (the "Year 2000 Issue").
The Company has developed plans to address its possible exposures
related to the impact of the Year 2000 Issue on its operations. These plans were
implemented primarily with the use of internal resources. The Company has
assessed (i) the equipment in its manufacturing operations that contains
microprocessors or relies on software, and (ii) the Company's internal systems.
The Company has determined that its manufacturing equipment does not have a Year
2000 Issue.
The Company's internal systems consist of its central operating and
accounting systems, which handles the majority of its business transactions. The
Company has completed an assessment of its central operating and accounting
systems which resulted in the identification of certain modifications necessary
to bring these systems into year 2000 compliance. These modifications have been
made, primarily through the purchase of updated hardware and updated
vendor-supplied software. Based on the results of initial testing with respect
to these systems, the Company does not anticipate that the Year 2000 Issue will
materially impact operations or operating results.
Management believes that total pretax costs incurred to date in
connection with the Year 2000 Issue have not materially impacted the Company's
operating results and that future costs of compliance likewise will not be
material.
The Company believes its planning efforts are adequate to address the
Year 2000 Issue and that its risk factors are primarily those that it cannot
directly control, including the readiness of its major suppliers, customers and
service providers. Failure on the part of these entities to timely remediate
their Year 2000 Issue could result in disruptions in the Company's supply of
materials, disruptions in its customers' ability to conduct business and
interruptions to the Company's daily operations. Management believes that its
exposure to third party risk may be minimized to some extent because it does not
rely significantly on any one supplier or customer. There can be no guarantee,
however, that the systems and operations relied on by such third parties will be
corrected on a timely basis and will not have a material adverse effect on the
Company.
Page 10
NOBILITY HOMES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (Continued)
Due to the nature of the Company's manufacturing and retail operations,
including the fact that the materials used by the Company in its manufactured
homes are widely available, the Company does not currently have formal
contingency plans or a timetable for implementing them. The Company's suppliers
typically maintain a one-month supply of materials. Contingency plans will be
established, if they are deemed necessary, after the Company has adequately
assessed the impact on its operations should third parties fail to properly
remediate their computer systems. Contingency plans would include such items as
identifying alternative suppliers and increasing inventory levels prior to the
year 2000 to ensure availability of supplies for the Company's manufacturing and
retail operations.
Page 11
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 26,
1999
b) The vote to elect a board of five directors was as follows:
For Against Abstain Not Voted
--- ------- ------- ---------
Terry E. Trexler 2,809,012 0 0 1,620,239
Richard C. Barberie 2,808,762 250 0 1,620,239
Robert P. Holliday 2,808,762 250 0 1,620,239
Robert P. Saltsman 2,808,392 620 0 1,620,239
Thomas W. Trexler 2,809,012 0 0 1,620,239
Item 6. Exhibits
Exhibit 10 Revolving Credit Agreement dated March 4, 1998 with
Suntrust Bank
Exhibit 27 Financial Data Schedule
Page 12
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 16, 1999 By: /s/ Terry E. Trexler
----------------------------------
Terry E. Trexler, Chairman,
President and Chief
Executive Officer
DATE: March 16, 1999 By: /s/ Thomas W. Trexler
----------------------------------
Thomas W. Trexler, Executive
Vice President, Chief Financial
Officer
DATE: March 16, 1999 By: /s/ Lynn J. Cramer, Jr.
----------------------------------
Lynn J. Cramer, Jr., Treasurer
and Principal Accounting Officer