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 1, 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 June 14, 1999 was 4,812,091.
NOBILITY HOMES, INC.
INDEX
Page
Number
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of May 1, 1999 and
October 31, 1998 3
Consolidated Statements of Income for the three and
six months ended May 1, 1999 and May 2, 1998 4
Consolidated Statements of Cash Flows for the three
and six months ended May 1, 1999 and May 2, 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 6. Exhibits
PART I. FINANCIAL INFORMATION
NOBILITY HOMES, INC.
CONSOLIDATED BALANCE SHEETS
May 1, 1999 October 31, 1998
----------- ----------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 5,047,612 $ 5,891,994
Accounts receivable 613,827 535,615
Inventories 11,373,424 10,391,340
Deferred income taxes 127,000 127,000
Prepaid expenses and other current assets 369,729 324,928
----------- -----------
Total current assets 17,531,592 17,270,877
Property, plant and equipment, net 2,034,269 2,037,140
Investment in joint venture - Nobility 21 623,923 428,938
Deferred income taxes - noncurrent 720,200 720,200
Other assets 2,324,967 2,346,051
----------- -----------
Total assets $ 23,234,951 $ 22,803,206
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,472,700 $ 1,836,608
Accrued expenses and other current liabilities 1,214,840 1,367,916
Accrued compensation 361,820 583,889
Income taxes payable 325,050 341,050
----------- -----------
Total current liabilities 3,374,410 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; 5,364,907 and 4,922,087
shares issued in 1999 and 1998, respectively 536,491 492,209
Additional paid in capital 8,629,146 2,197,185
Retained earnings 13,363,885 18,225,666
Less treasury stock at cost, 549,016 and
465,836 shares in 1999 and 1998, respectively (2,668,981) (2,241,317)
----------- -----------
Total stockholders' equity 19,860,541 18,673,743
----------- -----------
Total liabilities and stockholders' equity $ 23,234,951 $ 22,803,206
=========== ===========
NOBILITY HOMES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
May 1, May 2, May 1, May 2,
1999 1998 1999 1998
------ ------ ------ ------
Net sales $ 10,866,904 $ 11,277,506 $ 20,947,161 $ 21,866,558
Net sales - related parties 58,930 46,997 85,575 63,910
----------- ----------- ------------ ------------
Total net sales 10,925,834 11,324,503 21,032,736 21,930,468
Cost of goods sold (7,837,079) (8,284,991) (15,149,617) (16,180,605)
----------- ----------- ------------ ------------
Gross profit 3,088,755 3,039,512 5,883,119 5,749,863
Selling, general and administrative expenses (1,887,931) (1,502,550) (3,594,424) (3,006,442)
----------- ----------- ------------ ------------
Operating income 1,200,824 1,536,962 2,288,695 2,743,421
----------- ----------- ------------ ------------
Other income:
Interest income 42,320 72,826 94,618 136,645
Undistributed earnings in joint venture -
Nobility 21 173,392 21,970 194,985 47,822
Miscellaneous 5,681 4,587 9,164 7,769
----------- ----------- ------------ ------------
221,393 99,383 298,767 192,236
----------- ----------- ------------ ------------
Income before provision for income taxes 1,422,217 1,636,345 2,587,462 2,935,657
Provision for income taxes (526,000) (628,000) (973,000) (1,127,000)
----------- ----------- ------------ ------------
Net income $ 896,217 $ 1,008,345 $ 1,614,462 $ 1,808,657
=========== =========== ============ ============
Weighted average shares outstanding (1)
Basic 4,863,039 4,899,051 4,855,746 4,899,051
Diluted 4,908,301 4,981,994 4,919,066 4,965,055
Earnings per share (1)
Basic $ .18 $ .21 $ .33 $ .37
Diluted $ .18 $ .20 $ .33 $ .36
(1) Restated to reflect 10% stock dividend paid on February 19, 1999
NOBILITY HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
May 1, May 2,
1999 1998
----------- -----------
Cash flows from operating activities:
Net income $ 1,614,462 $ 1,808,657
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 123,846 105,427
Undistributed earnings in joint venture - Nobility 21 (194,985) (47,822)
(Increase) decrease in:
Accounts receivable (78,212) (871,949)
Inventories (982,084) (186,029)
Prepaid expenses and other current assets (44,801) (62,450)
Increase (decrease) in:
Accounts payable (363,908) (91,816)
Accrued expenses and other current liabilities (153,076) (65,753)
Accrued compensation (222,069) 455,256
Income taxes payable (16,000) (154,929)
---------- ----------
Net cash (used in) provided by operating activities (316,827) 888,592
---------- ----------
Cash flows from investing activities:
Purchase of equipment (99,891) (99,971)
---------- ----------
Cash flows from financing activities:
Purchase of treasury stock (427,664) -
---------- ----------
(Decrease) Increase in cash and cash equivalents (844,382) 788,621
Cash and cash equivalents at beginning of year 5,891,994 6,293,924
---------- ----------
Cash and cash equivalents at end of quarter $ 5,047,612 $ 7,082,545
========== ==========
Supplemental disclosure of cash flow information
Income taxes paid $ 1,135,000 $ 1,300,000
========== ==========
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 1, 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 May 1, 1999 and October 31, 1998 are summarized as follows:
May 1, October 31,
1999 1998
----------- -------------
Raw Materials $ 613,962 $ 587,057
Work-in-process 110,029 101,268
Finished homes 9,496,448 8,525,402
Pre-owned manufactured homes 547,072 621,017
Model home furniture and other 605,913 556,596
----------- ------------
$ 11,373,424 $ 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:
NOBILITY HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Three Months Ended Six Months Ended
May 1, May 2, May 1, May 2,
1999 1998 1999 1998
------ ------ ------ -------
Net Income $ 896,217 $ 1,008,345 $ 1,614,462 $ 1,808,657
========== ========== ========== ==========
Weighted average shares outstanding:
Basic 4,863,039 4,899,051 4,855,746 4,899,051
Add: common stock equivalents 45,262 82,943 63,320 66,004
---------- ---------- ---------- ----------
Diluted 4,908,301 4,981,994 4,919,066 4,965,055
========== ========== ========== ==========
Earnings per share:
Basic $ 0.18 $ 0.21 $ 0.33 $ 0.37
========== ========== ========== ==========
Diluted $ 0.18 $ 0.20 $ 0.33 $ 0.36
========== ========== ========== ==========
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.
NOBILITY HOMES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
- ---------------------
Net sales for the three months ended May 1, 1999 decreased 3.5 percent to
$10,925,834 from $11,324,503 for the same period last year. Net sales for the
six months also decreased 4.1 percent to $21,032,736 from $21,930,468 a year
ago. Sales at the Company's Prestige Home Centers for the three months ended
May 1, 1999 increased 15.6 percent to $10,263,029 and the six month period
increased 12.0 percent to $19,425,352 as compared to $8,877,898 and $17,339,644
a year ago respectively. Sales to outside dealers in the second quarter of 1999
decreased approximately $1.8 million for the three months and $3.1 million for
six months as compared to the same periods of 1998.
Gross profit, as a percentage of net sales, increased to 28.3 percent in
the second quarter of 1999 from 26.8 percent for the same period last year. For
the six months gross profit, as percentage of net sales, increased to 28.0
percent from 26.2 percent for the same six month period last year. The increase
in gross profit was primarily a result of improvements in the gross margins at
the Company's Prestige Home Centers.
Selling, general and administrative expenses, as a percentage of net sales,
increased to 17.3 percent in the second quarter of 1999 from 13.3 percent for
the second quarter last year. For the six months selling, general and
administrative expenses, as percentage of net sales, increased to 17.1 percent
from 13.7 percent for the same six month period last year. The increase in
selling, general and administrative expenses, as a percent of net sales, was
primarily due to increased expenses from the seven new retail sales centers
added during the fourth quarter of 1998.
Other income for second quarter 1999 was $221,393 of which $42,320 was from
interest on short term iasestments and $173,392 represented undistributed
earnings from the Company's financing joint venture, Nobility 21. For the
second quarter of 1998 other income was $99,383. For the six months of 1999
other income was $298,767 of which $94,618 was from interest on short term
investments and $194,985 was undistributed earnings from Nobility 21. For the
same six month period last year other income was $192,236.
As a result of the factors discussed above, net income for the second
quarter of 1999 was $896,217 or $.18 per share, compared to $1,008,345 or $.20
per share in the second quarter of 1998. For the six months ended May 1, 1999
net income was $1,614,462 or $.33 per share, compared to $1,808,657 or $.36 per
share as of May 2, 1998. Earnings per share for 1998 has been restated to
reflect a 10% stock dividend paid on February 19, 1999.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents were $5,047,612 on May 1, 1999 compared to
$5,891,994 as of October 31, 1998. Working capital increased to $14,157,182 at
May 1, 1999 from $13,141,414 at October 31, 1998. Inventories increased to
$11,373,424 in the second quarter of 1999 from $10,391,340 at October 31, 1998.
The increased in inventory was due to the additional number of homes
manufactured in the first and second quarter of 1999 for the new retail sales
centers added in 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 May 1, 1999,
there were no borrowings outstanding under either of these agreements.
NOBILITY HOMES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (Continued)
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.
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 condi-
tions 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.
The total pretax costs incurred to date in connection with the Year 2000
Issue have not materially impacted the Company's operating results and manage-
ment believes 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.
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.
Part II. OTHER INFORMATION AND SIGNATURES
Item 1. There were no reportable events for Item 1 through Item 5
Item 6. Exhibits
Exhibit 27 Financial Data Schedule
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 14, 1999 By: /s/ Terry E. Trexler
--------------------------------
Terry E. Trexler, Chairman,
President and Chief
Executive Officer
DATE: June 14, 1999 By: /s/ Thomas W. Trexler
--------------------------------
Thomas W. Trexler, Executive
Vice President, Chief Financial
Officer
DATE: June 14, 1999 By: /s/ Lynn J. Cramer, Jr.
--------------------------------
Lynn J. Cramer, Jr., Treasurer
and Principal Accounting
Officer