10-Q 1 dkm160.txt NOBILITY HOMES' 10-Q F/Q/E 08/03/02 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