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 July 31, 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 organization) Identification No.)
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 14, 1999 was 4,790,591.
NOBILITY HOMES, INC.
INDEX
Page
Number
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of July 31, 1999
and October 31, 1998 3
Consolidated Statements of Income for the three and
nine months ended July 31, 1999 and August 1, 199 4
Consolidated Statements of Cash Flows for the three and
nine months ended July 31, 1999 and August 1, 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
July 31, 1999 October 31, 1998
------------------ ----------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 5,410,153 $ 5,891,994
Accounts receivable 662,042 535,615
Inventories 10,398,517 10,391,340
Deferred income taxes 127,000 127,000
Prepaid expenses and other current assets 266,659 324,928
----------- -----------
Total current assets 16,864,371 17,270,877
Property, plant and equipment, net 2,014,400 2,037,140
Investment in joint venture - Nobility 21 796,577 428,938
Deferred income taxes - noncurrent 720,200 720,200
Other assets 2,250,007 2,346,051
----------- -----------
Total assets $ 22,645,555 $ 22,803,206
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 997,065 $ 1,836,608
Accrued expenses and other current liabilities 1,220,676 1,367,916
Accrued compensation 261,485 583,889
Income taxes payable 46,050 341,050
----------- -----------
Total current liabilities 2,525,276 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 13,815,394 18,225,666
Less treasury stock at cost, 574,316 and
465,836 shares in 1999 and 1998, respectively (2,860,752) (2,241,317)
----------- -----------
Total stockholders' equity 20,120,279 18,673,743
----------- -----------
Total liabilities and stockholders' equity $ 22,645,555 $ 22,803,206
=========== ===========
NOBILITY HOMES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
-------- --------- -------- ---------
Net sales $ 9,424,872 $ 11,403,117 $ 30,372,033 $ 33,269,675
Net sales - related parties - 94,005 85,575 157,915
----------- ----------- ------------ ------------
Total net sales 9,424,872 11,497,122 30,457,608 33,427,590
Cost of goods sold (7,133,791) (8,276,954) (22,283,408) (24,457,559)
----------- ----------- ------------ ------------
Gross profit 2,291,081 3,220,168 8,174,200 8,970,031
Selling, general and administrative expenses (1,735,349) (1,687,594) (5,329,773) (4,694,036)
Revaluation adjustment of goodwill (78,566) - (78,566) -
Operating income 477,166 1,532,574 2,765,861 4,275,995
----------- ----------- ------------ ------------
Other income:
Interest income 52,828 77,337 147,446 213,982
Undistributed earnings in joint venture -
Nobility 21 172,654 32,236 367,639 80,058
Miscellaneous 19,859 34,655 29,023 42,424
----------- ----------- ------------ ------------
245,341 144,228 544,108 336,464
----------- ----------- ------------ ------------
Income before provision for income taxes 722,507 1,676,802 3,309,969 4,612,459
Provision for income taxes (271,000) (644,000) (1,244,000) (1,771,000)
----------- ----------- ------------ ------------
Net income $ 451,507 $ 1,032,802 $ 2,065,969 $ 2,841,459
=========== =========== ============ ============
Weighted average shares outstanding (1)
Basic 4,805,684 4,899,051 4,839,059 4,899,051
Diluted 4,806,904 5,015,131 4,885,862 4,987,153
Earnings per share (1)
Basic $ .09 $ .21 $ .43 $ .58
Diluted $ .09 $ .21 $ .42 $ .57
(1) Restated to reflect 10% stock dividend paid on February 19, 1999
NOBILITY HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
July 31, August 1,
1999 1998
----------------- -----------------
Cash flows from operating activities:
Net income $ 2,065,969 $ 2,841,459
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization 264,335 153,743
Undistributed earnings in joint venture - Nobility 21 (367,639) (80,058)
(Increase) decrease in:
Accounts receivable (126,427) (1,010,861)
Inventories (7,177) 9,660
Prepaid expenses and other current assets 58,269 (72,845)
Increase (decrease) in:
Accounts payable (839,543) (486,325)
Accrued expenses and other current liabilities (147,240) 708,551
Accrued compensation (322,404) (54,021)
Income taxes payable (295,000) (101,929)
----------- -----------
Net cash provided by operating activities 283,143 1,907,374
----------- -----------
Cash flows from investing activities:
Increase in receivable from officer for life insurance premiuns (18,423) -
Purchase of equipment (127,126) (603,723)
----------- -----------
Cash flows from financing activities:
Purchase of treasury stock (619,435) -
----------- -----------
(Decrease) Increase in cash and cash equivalents (481,841) 1,303,651
Cash and cash equivalents at beginning of year 5,891,994 6,293,924
----------- -----------
Cash and cash equivalents at end of quarter $ 5,410,153 $ 7,597,575
=========== ===========
Supplemental disclosure of cash flow information
Income taxes paid $ 1,685,000 $ 1,891,000
=========== ===========
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 July 31, 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 July 31, 1999 and October 31, 1998 are summarized as
follows:
July 31, October 31,
1999 1998
-------- -----------
Raw Materials $ 640,622 $ 587,057
Work-in-process 89,650 101,268
Finished homes 8,538,452 8,525,402
Pre-owned manufactured homes 543,707 621,017
Model home furniture and other 586,086 556,596
----------- -----------
$ 10,398,517 $ 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 Nine Months Ended
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
Net Income $ 451,507 $ 1,032,802 $ 2,065,969 $ 2,841,459
========== ========== ========== ==========
Weighted average shares outstanding:
Basic 4,805,684 4,899,051 4,839,059 4,899,051
Add: common stock equivalents 1,220 116,080 46,803 88,102
---------- ---------- ---------- ----------
Diluted 4,806,904 5,015,131 4,885,862 4,987,153
========== ========== ========== =========
Earnings per share:
Basic $ 0.09 $ 0.21 $ 0.43 $ 0.58
========== ========== ========== ==========
Diluted $ 0.09 $ 0.21 $ 0.42 $ 0.57
========== ========== ========== ==========
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 July 31, 1999 decreased 18.0 percent
to $9,424,872 from $11,497,122 for the same period last year. Net sales for the
nine months also decreased 8.9 percent to $30,457,608 from $33,427,590 a year
ago. Sales at the Company's Prestige Home Centers for the third quarter of 1999
decreased 8.6 percent to $8,610,495 compared to $9,427,051 for the three months
ended August 1, 1998. Sales during the nine month period increased 4.7 percent
to $28,035,847 as compared to $26,766,694 a year ago. Sales to outside dealers
in the third quarter of 1999 decreased approximately $1.2 million for the three
months and $4.3 million for the nine months as compared to the same periods of
1998. The decline in sales is attributable in large part to increased
competition caused by the industry's excess inventory at the retail level.
Gross profit, as a percentage of net sales, decreased to 24.3 percent in
the third quarter of 1999 from 28.0 percent for the same period last year. The
decrease in gross profit was primarily a result of a decline in the Company's
outside dealer sales. Gross profit, as percentage of net sales, for the same
nine month periods of 1999 and 1998 was 26.8 percent.
Selling, general and administrative expenses, as a percentage of net sales,
increased to 18.4 percent in the third quarter of 1999 from 14.7 percent for the
third quarter last year. For the nine months selling, general and
administrative expenses, as percentage of net sales, increased to 17.5 percent
from 14.0 percent for the same nine 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.
During the quarter the Company reevaluated goodwill in the amount of
$78,566 in connection with the closing of one recently acquired under
performing retail sales center.
Other income for third quarter 1999 was $245,341 of which $52,828 was from
interest on short term investments and $172,654 represented undistributed
earnings from the Company's financing joint venture, Nobility 21. For the third
quarter of 1998 other income was $144,228. For the nine months of 1999 other
income was $544,108 of which $147,446 was from interest on short term invest-
ments and $367,639 was undistributed earnings from Nobility 21. For the same
nine month period last year other income was $336,464.
As a result of the factors discussed above, net income for the third
quarter of 1999 was $451,507 or $.09 per share, compared to $1,032,802 or $.21
per share in the third quarter of 1998. For the nine months ended July 31, 1999
net income was $2,065,969 or $.42 per share, compared to $2,841,459 or $.57 per
share as of August 1, 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 $5,410,153 on July 31, 1999 compared to
$5,891,994 as of October 31, 1998. Working capital increased to $14,339,095 at
July 31, 1999 from $13,141,414 at October 31, 1998. Inventories decreased to
$10,398,517 in the third quarter of 1999 from $11,373,424 in the second quarter
of 1999.
The Company maintains a revolving line of credit with a major bank
providing for borrowings up to $4.0 million. A second revolving line of credit
with another bank provides for borrowings up to $1.5 million. These two lines
of credit provide the Company with an additional $5.5 million of working capital
for use in connection with its overall operations. At July 31, 1999, there were
no borrowings outstanding under either of these lines.
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.
During the fourth quarter we anticipate continued pressure on both
sales and earnings resulting from the very competitive market caused by the
industry's excess inventory. This excess inventory has developed primarily from
industry growth of new retail locations that has outpaced consumer demand.
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.
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 micro-
processors 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
management 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: September 14, 1999 By: /s/ Terry E. Trexler
------------------------------
Terry E. Trexler, Chairman,
President and Chief
Executive Officer
DATE: September 14, 1999 By: /s/ Thomas W. Trexler
------------------------------
Thomas W. Trexler, Executive
Vice President, Chief
Financial Officer
DATE: September 14, 1999 By: /s/ Lynn J. Cramer, Jr.
------------------------------
Lynn J. Cramer, Jr., Treasurer
and Principal Accounting
Officer