-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S9ty0SwzFN4Z2bu90Yl/VH21N2E5jSKZDqck2wZdpdtLxJ599y2XUsje8cLa8ugl LrRhBQ3N2NbOW8pHvMRtLw== 0000897069-04-000222.txt : 20040130 0000897069-04-000222.hdr.sgml : 20040130 20040130165359 ACCESSION NUMBER: 0000897069-04-000222 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20031101 FILED AS OF DATE: 20040130 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOBILITY HOMES INC CENTRAL INDEX KEY: 0000072205 STANDARD INDUSTRIAL CLASSIFICATION: MOBILE HOMES [2451] IRS NUMBER: 591166102 STATE OF INCORPORATION: FL FISCAL YEAR END: 1027 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-06506 FILM NUMBER: 04556540 BUSINESS ADDRESS: STREET 1: 3741 S W 7TH ST CITY: OCALA STATE: FL ZIP: 34478 BUSINESS PHONE: 9047325157 MAIL ADDRESS: STREET 1: P O BOX 1659 CITY: OCALA STATE: FL ZIP: 34478-1659 10-K 1 dkm63.txt FORM 10-K F/Y/E NOVEMBER 1, 2003 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended November 1, 2003 Commission file number 0-6506 NOBILITY HOMES, INC. (Name of issuer in its charter) Florida 59-1166102 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3741 S.W. 7th Street Ocala, Florida 34474 (Address of principal executive offices) (Zip Code) (352) 732-5157 (Issuer's telephone number, including area code) Securities registered under Section 12(b) of the Act: Title of each class Name of each exchange ------------------- on which registered None ------------------- None Securities registered pursuant to Section 12(g) of the Act: Common Stock $.10 par value (Title of Class) Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes No X State the aggregate market value of the voting stock held by non-affiliates of the registrant on January 22, 2004, computed by reference to the average high and low prices on that date: $15,817,543.50 (APPLICABLE ONLY TO CORPORATE ISSUERS) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of January 22, 2004: 4,010,996 shares of common stock. DOCUMENTS INCORPORATED BY REFERENCE Incorporated at ----------------------------------- --------------- Nobility Homes, Inc. Proxy Statement for the 2004 Part III, Items 10, Annual Meeting of Shareholders 11, 12, 13 and 14 PART I Item 1. Description of Business - ------ ----------------------- Nobility Homes, Inc., a Florida corporation incorporated in 1967, designs, manufactures and sells a broad line of manufactured homes through a network of its own retail sales centers throughout Florida. Nobility also sells its manufactured homes on a wholesale basis to independent manufactured home retail dealers and manufactured home communities. Manufactured Homes - ------------------ Nobility's homes are available in approximately 100 active models sold under the trade names "Kingswood," "Richwood," "Springwood," "Springwood Special," "Tropic Isle Special," "Regency Manor Special," and "Special Edition." The homes, ranging in size from 672 to 2,259 square feet and containing from one to five bedrooms, are available in o single-wide widths of 14 and 16 feet ranging from 48 to 72 feet in length; o double-wide widths of 24, 26, 28 and 32 feet ranging from 32 to 76 feet in length; and o triple-wide widths of 36, 38 and 42 feet ranging from 44 to 72 feet in length. Nobility's homes are sold primarily as unfurnished dwellings ready for permanent occupancy. Interiors are designed and color coordinated in a range of decors. Depending on the size of the unit and quality of appliances and other appointments, retail prices for Nobility's homes typically range from approximately $20,000 to $80,000. Most of the prices of Nobility's homes are considered by it to be within the low to medium price range of the industry. Both of Nobility's manufacturing plants utilize assembly line techniques in manufactured home production. Both plants manufacture and assemble the floors, sidewalls, end walls, roofs and interior cabinets for their homes. Nobility purchases from outside suppliers various other components that are built into its homes including the axles, frames, tires, doors, windows, pre-finished sidings, plywood, ceiling panels, lumber, rafters, insulation, gypsum board, appliances, lighting and plumbing fixtures, carpeting and drapes. Nobility is not dependent upon any one particular supplier for its raw materials or component parts, and is not required to carry significant amounts of inventory to assure itself of a continuous allotment of goods from suppliers. Nobility's two manufacturing plants operated at an average of approximately 35% of their single shift capacity in fiscal 2003 and 2002 and 30% in fiscal 2001. Nobility generally does not manufacture its homes to be held by it as inventory (except for model home inventory of its wholly-owned retail network subsidiary, Prestige Home Centers, Inc.), but, rather, manufactures its homes after receipt of orders. Although Nobility attempts to maintain a consistent level of production of homes throughout the fiscal year, seasonal fluctuations do occur, with sales of homes generally lower during the first fiscal quarter due to the holiday season. The sales area for a manufactured home manufacturer is limited by substantial delivery costs of the finished product. Nobility's homes are delivered by outside trucking companies. Nobility estimates that it can compete effectively within a range of approximately 350 miles from its manufacturing plants. During the last three fiscal years, substantially all of Nobility's sales were made in Florida. Retail Sales - ------------ Prestige Home Centers, Inc. operates 17 retail sales centers in north and central Florida. Its principal executive offices are located at Nobility's headquarters in Ocala, Florida. Sales by Prestige accounted for 74.7%, 71.7% and 83.0% of Nobility's sales during fiscal 2003, 2002 and 2001, respectively. Each of Prestige's retail sales centers is located within 350 miles of Nobility's two manufacturing facilities. Prestige owns the land at three of its retail sales centers and leases the remaining 14 retail sales centers from unaffiliated parties under leases with terms of between one and three years with renewal options. 2 The primary customers of Prestige are homebuyers who generally purchase manufactured homes to place on their own homesites. Prestige operates its retail sales centers with a model home concept. Each of the homes displayed at its retail sales centers is furnished and decorated as a model home. Although the model homes may be purchased from Prestige's model home inventory, generally, customers order homes which are shipped directly from the factory to their homesite. Prestige sales generally are to purchasers living within a radius of approximately 100 miles from the selling retail lot. In fiscal 1997, Nobility entered into a joint venture agreement with 21st Century Mortgage Corporation to provide financing to retail customers purchasing homes from Prestige. Additionally, financing for home purchases is provided by eight other independent sources that specialize in manufactured housing lending and numerous banks that finance manufactured home purchases. Prestige and Nobility are not required to sign any recourse agreements with any of these retail financing sources, nor does Prestige itself finance customers' new home purchases. The retail sale of manufactured homes is a highly competitive business. Because of the large number of retail sales centers located throughout Nobility's market area, potential customers typically can find several sales centers within a 100 mile radius of their present home. Prestige competes with over 100 other retailers in its primary market area, some of which may have greater financial resources than Prestige. In addition, manufactured homes offered by Prestige compete with conventional site-built housing. Prestige's wholly-owned subsidiary, Mountain Financial, Inc., an independent insurance agent and mortgage broker, provides mortgage brokerage services, automobile, extended warranty coverage and property and casualty insurance to Prestige customers in connection with their purchase and financing of manufactured homes. Mountain Financial, Inc., receives a mortgage brokerage fee at the time a loan is originated and a commission on the insurance premium collected at the time an insurance policy is written and in future years if the homeowner renews the policy. Its revenues were approximately $311,000, $283,000, and $241,000 in fiscal 2003, 2002 and 2001, respectively. Wholesale Sales to Independent Dealers and Manufactured Home Communities - ------------------------------------------------------------------------ Nobility currently sells its homes on a wholesale basis exclusively through four full-time salespersons to approximately 60 independent dealers. Nobility continues to seek new dealers in the areas in which it operates, as there is ongoing turnover in the dealers with which it deals at any one time, especially with manufactured home communities as they achieve full occupancy levels. As is common in the industry, most of Nobility's dealers other than its subsidiary, Prestige, are independent dealers that sell homes produced by several manufacturers. Mobile Home Lifestyles, which operates multiple manufactured home communities, accounted for approximately $4.8 million or 12% of Nobility's total sales in fiscal 2003 and $4.1 million or 11% in fiscal 2002. No independent dealer accounted for more than 10% of Nobility's total sales in fiscal 2001. Dealers generally obtain inventory financing from financial institutions (usually banks and finance companies) on a "floor plan" basis where the financial institution obtains a security interest in all or part of the dealer's manufactured home inventory. Nobility from time to time enters into repurchase agreements with the lending institutions which provide that, in the event of a dealer's default, Nobility will, at the lender's request, repurchase the home provided that Nobility's liability will not exceed the manufacturer's invoice price and that the repurchased home is new and unused. Generally, the repurchase agreement expires within one year after a home is sold to the dealer, and the repurchase price is limited to between 70% to 100% of the original invoice price to the dealer, depending on the length of time that has expired since the original sale. Generally, repurchase is conditioned upon the dealer's insolvency. Any losses incurred as a result of such repurchases would be limited to the difference between the repurchase price and the subsequent resale value of the home repurchased. Nobility was not required to repurchase any homes during fiscal 2003, 2002 or 2001. For additional information, see Note 14 of "Notes to Consolidated Financial Statements." Nobility does not finance retail sales of new homes for customers of its independent dealers. Nobility does not generally offer consigned inventory programs or other credit terms to independent dealers and ordinarily receives payment for its homes within 15 to 30 days of delivery. However, Nobility may offer extended terms to unrelated park dealers who do a high volume of business with Nobility. In order to stimulate sales, Nobility sells homes for display to selected manufactured home communities on special terms. The high visibility of Nobility's homes in such communities generates additional sales of its homes through such dealers. 3 Regulation - ---------- The manufacture, distribution and sale of homes is subject to governmental regulation at the federal, state and local levels. The Department of Housing and Urban Development has adopted national construction and safety standards that have priority over existing state standards. In addition, HUD regulations require that manufactured homes be constructed to more wind stringent load and thermal standards. Compliance with these standards involves approval by a HUD approved engineering firm of engineering plans and specifications on all models. HUD's standards also require periodic inspection by state or other third party inspectors of plant facilities and construction procedures, as well as inspection of manufactured home units during construction. In addition, some components of manufactured homes may also be subject to Consumer Product Safety Commission standards and recall requirements. Nobility also manufactures a small number of modular homes which are required to comply with the standard building code established by the Florida Department of Community Affairs. Nobility estimates that compliance with federal, state and local environmental protection laws will have no material effect upon capital expenditures for plant or equipment modifications or earnings for the next fiscal year. The transportation of manufactured homes is subject to state regulation. Generally, special permits must be obtained to transport the home over public highways, and restrictions are imposed to promote travel safety including those relating to routes, travel periods, speed limits, safety equipment and size. Nobility's homes are subject to the requirements of the Magnuson-Moss Warranty Act and Federal Trade Commission rulings which regulate warranties on consumer products. Nobility provides a limited warranty of one year on the structural components of its homes. Competition - ----------- The manufactured home industry is highly competitive. The initial investment required for entry into the business of manufacturing homes is not unduly large. State bonding requirements for entry in the business vary from state to state. The bond requirement for Florida is $50,000. Nobility competes directly with other manufacturers, some of whom are both considerably larger and possess greater financial resources than Nobility. Based on number of units sold, Nobility ranks 6th in the state of Florida out of the top 45 manufacturers selling manufactured homes in the state. Nobility estimates that of those 45 manufacturers approximately 15 manufacture homes of the same type as Nobility and compete in the same market area. Nobility believes that it is generally competitive with most of those manufacturers in terms of price, service, warranty and product performance. According to statistics compiled by Statistical Surveys, Inc. from records on file with the State of Florida, Prestige has been one of the largest retail dealers of multi-section manufactured homes in Florida since 1994, based on number of home sales. Employees - --------- As of January 5, 2004, Nobility had 218 full-time employees, including 71 employed by Prestige. Approximately 109 employees are factory personnel compared to approximately 102 in such positions a year ago, and 103 are in management, administrative, supervisory, sales and clerical positions (including 65 management and sales personnel employed by Prestige) compared to approximately 104 a year ago. In addition, Nobility employs part-time employees when necessary. Nobility makes contributions toward employees' group health and life insurance and to the Nobility 401(k) plan. Nobility, which is not subject to any collective bargaining agreements, has not experienced any work stoppage or labor disputes and considers its relationship with employees to be generally satisfactory. Item 2. Properties - ------ ---------- As of November 1, 2003, Nobility owned and operated two manufacturing plants: 4
Depreciated Cost of Location Approximate Size Plant and Property at November 1, 2003 -------- ---------------- -------------------------------------- Belleview, Florida 33,500 sq. ft. $546,222 Ocala, Florida(1) 72,000 sq ft. 984,017
(1) Nobility's Ocala facility is a 72,000 square foot plant is located on approximately 35.5 acres of land on which an additional two-story structure adjoining the plant serves as Nobility's corporate offices. Nobility's Belleview plant is of metal and concrete construction and the Ocala plant is of metal construction. Both properties are in good condition and require little maintenance. Prestige has acquired the properties on which it's Pace, Panama City and Yulee, Florida retail sales centers are located. Prestige leases the property for its other 14 retail sales centers. Item 3. Legal Proceedings - ------ ----------------- Certain claims and suits arising in the ordinary course of business have been filed or are pending against Nobility or Prestige. In the opinion of management, any related liabilities that might arise would be covered under terms of Nobility's liability insurance policies or would not have a material adverse impact on Nobility's financial position, results of operations or cash flows. Item 4. Submission of Matters to a Vote of Security Holders - ------ --------------------------------------------------- None 5 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder - ------ Matters ---------------------------------------------------------------- Market Information - ------------------ Nobility's common stock is listed on the Nasdaq National Market under the symbol NOBH. The following table shows the range of high and low sales prices for the common stock for each fiscal quarter of 2003 and 2002.
Fiscal Year End ------------------------------------------------------------------------ November 1, 2003 November 2, 2002 Fiscal ---------------- ---------------- Quarter High Low High Low ------- ---- --- ---- --- 1st $ 9.75 $ 8.52 $ 9.80 $ 7.05 2nd 9.29 7.73 9.90 8.51 3rd 9.92 7.75 9.50 7.81 4th 10.50 8.79 10.20 7.65
Holders - ------- At January 21, 2004, the approximate number of holders of record of common stock was 230 (not including individual participants in security position listings). Dividends - --------- The Board of Directors declared an annual cash dividend of $0.10 per common share for fiscal year 2003, payable January 12, 2004 to stockholders of record as of December 29, 2003. The payment of future cash dividends is within the discretion of Nobility's board of directors and will depend, among other factors, on Nobility's earnings, capital requirements and operating and financial condition. During fiscal 2003, 2002 and 2001, no cash dividends were paid. Securities Authorized for Issuance Under Equity Compensation Plans - ------------------------------------------------------------------ The following table displays equity compensation plan information as of the fiscal year ended November 1, 2003. For further information, see Note 12 of "Notes to Consolidated Financial Statements." Equity Compensation Plan Information
Number of securities remaining available Number of securities to be Weighted-average for issuance under issued upon exercise of exercise price of equity compensation plans outstanding options, outstanding options, (excluding securities reflected warrants and rights warrants and rights in column (a)) (a) (b) (c) Equity compensation plans approved by security holders 200,560 $8.18 294,440 Equity compensation plans not approved by security holders None ----------------------------- ----------------------- ---------------------------------- Total 200,560 $8.18 294,440
Issuer Purchases of Equity Securities - ------------------------------------- Nobility did not make any stock repurchases during the fourth quarter of fiscal 2003. 6 Item 6. Selected Financial Data - ------ ----------------------- The following table sets forth Selected Financial Data for each of Nobility's last five fiscal years. This information should be read in conjunction with Nobility's consolidated financial statements (including the related notes thereto) and Management's Discussion and Analysis of the Financial Condition and Results of Operations, each included elsewhere in this Form 10-K.
Years Ended(1) - ----------------------------------------------------------------------------------------------------------------------- November 1, November 2, November 3, November 4 November 6, 2003 2002 2001 2000 1999 (In thousands except per share data) ----------------------------------------------------------------------------------------- Total net sales $39,229 $37,916 $30,288 $29,565 $40,353 Income from operations 4,078 3,930 3,000 1,874 3,386 Other income 656 880 913 1,650 1,080 Net income 3,079 3,135 2,478 2,268 2,792 Weighted average shares outstanding Basic 3,996,424 4,107,748 4,200,863 4,610,220 4,819,823 Diluted 4,021,996 4,130,464 4,286,778 4,610,220 4,839,659 Earnings per share(2) Basic $ .77 $ .76 $ .59 $ .49 $ .58 Diluted .77 .76 .58 .49 .58 Total assets 32,705 27,496 25,741 23,843 23,122 Long term obligations -0- -0- -0- -0- -0- Stockholders' equity 26,816 23,779 21,724 21,025 20,437 Cash dividends per common -0- -0- -0- -0- -0- share
- ------------------- (1) Nobility's fiscal year ends on the first Saturday on or after October 31. The years ended November 1, 2003, November 2, 2002, November 3, 2001 and November 4, 2000, consisted of a fifty-two week period and the year ended November 6, 1999, consisted of a fifty-three week period. (2) On February 19, 1999, a 10% stock dividend was paid to shareholders. Per share amounts in the table have been restated to give effect to this stock dividend. Item 7. Management's Discussion and Analysis of Financial Condition and - ------ Results of Operations --------------------------------------------------------------- General - ------- Nobility's primary focus is homebuyers who generally purchase their manufactured homes from retail sales centers to locate on property they own. Nobility has aggressively pursued this market through its Prestige retail sales centers. While Nobility actively seeks to make wholesale sales to independent retail dealers, its presence as a competitor limits potential sales to dealers located in the same geographic areas serviced by its Prestige sales centers. Nobility has also aggressively targeted the retirement community market, which is made up of retirees moving to Florida and typically purchasing homes to be located on sites leased from park communities offering a variety of amenities. Nobility sold 831 homes in fiscal 2003, of which 336 homes, representing sales of $8,427,790, were sold to independent dealers. Nobility sold 832 homes in fiscal 2002, of which 326 homes, representing sales of $7,808,696, were sold to independent dealers. In fiscal 2001, of the 729 homes sold by Nobility, 229 homes were sold to independent dealers, representing sales of $4,480,973. The balance of Nobility sales in fiscal 2003, 2002 and 2001, representing 74.7%, 71.7% and 83.0% of net sales, respectively, were made on a retail basis through Prestige's retail centers. 7 Nobility has a product line of approximately 100 active models. Although market demand can fluctuate on a fairly short-term basis, the manufacturing process is such that Nobility can alter its product mix relatively quickly in response to changes in the market. During fiscal 2003, 2002 and 2001, Nobility's product mix was affected by the number of "Special Edition" homes marketed by Prestige and by larger, more expensive multi-wide homes resulting from the availability of varied types of financing at competitive rates. Most family buyers today purchase three-, four- or five-bedroom manufactured homes, compared with the two-bedroom home that typically appeals to the retirement buyers who reside in the manufactured housing communities. Nobility's Majestic 21 joint venture with 21st Century Mortgage Corporation provides mortgage financing to retail customers who purchase Nobility's manufactured homes at Prestige retail sales centers. This joint venture, which originates and services loans, has given Prestige more control over the financing aspect of the retail home sales process and allowed it to offer better services to its retail customers. Management believes that the joint venture gives Prestige an additional potential for profit by providing finance products to retail customers. In addition, management believes that Prestige has more input in the design of unique finance programs for prospective homebuyers, and that the joint venture has resulted in more profitable sales at its Prestige retail sales centers. In an effort to make manufactured homes more competitive with site-built housing, financing packages are available to provide (1) 30-year financing, (2) an interest rate reduction program, (3) combination land/manufactured home loans, and (4) a 5% down payment program for qualified buyers. Prestige also maintains eight outside financing sources that provide financing to retail homebuyers for its manufactured homes. Through its wholly-owned subsidiary, Mountain Financial, Inc., an independent insurance agency and mortgage broker, Prestige offers homeowners insurance, service warranty products and brokering of mortgage loans to facilitate the home buying process for the customers of Prestige Home Centers. Mountain Financial, Inc. also provides automobile and other personal lines insurance products. The years ended November 1, 2003, November 2, 2002 and November 3, 2001 each consisted of a fifty-two (52) week period. Results Of Operations - --------------------- For fiscal years ended November 1, 2003, November 2, 2002 and November 3, 2001, results of operations are as follows. Total net sales in fiscal 2003 were $39,229,156 compared to $37,916,463 in fiscal 2002 and $30,287,663 in fiscal 2001. Net sales increased 3.5% in fiscal 2003, 25.2% in fiscal 2002 and 2.4% in fiscal 2001 as compared to the prior year net sales. The increased sales in fiscal 2003 was primarily due to the 7.9% increase in sales to outside dealers coupled with an increase of 6.5% in Prestige same store revenues. The increased sales in fiscal 2002 and fiscal 2001 were primarily due to a 78.3% and 75.0% increase, respectively, in sales to outside park dealers as a result of aggressively pursuing that market. Prestige same store revenues increased 9.0% in fiscal year 2002 compared to a decline of 5.4% in fiscal year 2001. The Company adopted the Securities and Exchange Commission's Staff Accounting Bulletin No. 101 (SAB 101) on revenue recognition as of November 5, 2000. Net sales continued to be impacted by a very competitive market caused by the industry's excess retail inventory and repossessions. The excess inventory had developed from industry growth of new retail locations that has outpaced customer demand plus an increase in the number of repossessions returning to the marketplace. Tighter credit standards and management's decision not to discount homes to maintain sales volume also adversely impacted sales in the last three fiscal years. In spite of economic uncertainties and continued unemployment, management expects the demand for our homes to continue, bolstered by continuing low interest rates and by reductions in the industry's excess home inventory and repossessions at retail sales centers. Combined industry-wide shipment of multi-section and single-section homes for the first ten months of calendar 2003 declined approximately 23% from the like period last year and declined 10% in calendar 2002 and 26% in calendar 2001. Florida combined industry shipments of multi-section homes and single-section homes in the first ten months of calendar 2003 declined approximately 6% from the like period last year and declined 2% in calendar 2002 and 6% in calendar year 2001. Approximately 97% of Nobility's home sales are multi-section homes. 8 Gross profit as a percentage of net sales was 25.2% in fiscal 2003 compared to 25.9% in fiscal 2002 and 27.9% in fiscal 2001. The decline in gross profit for 2003 was primarily due to higher material costs, primarily in lumber and oriented strand board (OSB) used in manufacturing. The decline in gross profit for fiscal 2002 was primarily due to the higher overhead costs at the manufacturing plants and the increase in gross profit for fiscal 2001 was primarily as a result of lower material costs in the manufacturing process and improved operations at the retail sales centers. Selling, general and administrative expenses as a percent of net sales were 14.8% in fiscal 2003 compared to 15.5% in fiscal 2002 and 18.0% in fiscal 2001. The decrease in selling, general and administrative expenses, as a percent of net sales, in fiscal years 2003 and 2002 resulted from the increase in sales which had a significant impact on selling, general and administration expenses as a percentage because most of these expenses are fixed, except for compensation expenses. The decrease in selling, general and administrative expenses, as a percent of net sales, in fiscal 2001 was primarily due to reduced general and administrative cost at the manufacturing plants. The Company earned from interest on cash equivalents and investments $211,018 for fiscal 2003, $196,026 for fiscal 2002 and $365,029 for fiscal 2001. The decreased interest income in fiscal 2002 was a result of lower interest rates compared to 2001. Nobility received payments from TLT, Inc. of $320,764 in fiscal 2002, $200,000 in fiscal 2001. The remaining advances to TLT, Inc. of approximately $232,000 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 $220,148 in fiscal 2003, $291,081 in fiscal 2002 and $285,534 in fiscal 2001. 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 fluctuates due to loan origination volume, foreclosure/ repossession frequency and the severity of loss on the resale of the foreclosed units. The Company believes that its historical loss experience has been favorable impacted by its ability to resell foreclosed/repossessed units through its network of retail sales centers. As a result of the factors discussed above, earnings for fiscal 2003 were $3,078,479 or $.77 per diluted share compared to $3,134,902 or $.76 per diluted share for fiscal 2002 and $2,477,913 or $.58 per diluted share for fiscal 2001. Liquidity And Capital Resources - ------------------------------- Cash and cash equivalents were $10,641,748 at November 1, 2003 compared to $12,481,711 at November 2, 2002. The decrease in cash and cash equivalents was primarily due to a change in the investment portfolio to long-term marketable securities to obtain a higher yield. Marketable securities were $5,592,375 at November 1, 2003. Working capital was $14,736,228 at November 1, 2003 compared to $17,404,165 at November 2, 2002. Nobility owns the entire inventory for its Prestige retail sales centers and does not incur any third party floor plan financing expenses. Inventories decreased to $6,557,659 at November 1, 2003 from $6,589,076 at November 2, 2002. Nobility repurchased in the open market 29,700 shares of its common stock for $260,158 during fiscal 2003 and 127,225 shares of its common stock for $1,079,712 in fiscal 2002. Nobility maintains a revolving credit agreement with a major bank providing for borrowing up to $4,000,000. At November 1, 2003 and November 2, 2002, 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 the home inventory for existing and any new retail sales centers will be met with internal sources. 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. 9 Revenue Recognition The Company recognizes revenue for the majority of retail sales upon the occurrence of the following: o its receipt of a down payment, o completion of the home, o title having passed to the retail home buyer, o funds having been 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 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 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 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. Off-balance Sheet Arrangements - ------------------------------ As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities ("SPE's"), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of November 1, 2003, we are not involved in any material unconsolidated SPE transactions. Contractual Obligations - ----------------------- The impact of our contractual obligations as of November 1, 2003 are expected to have on our liquidity and cash flow in future periods is as follows:
Payments Due By Period ------------------------------------------- Less Than Total 1 Year 1-3 Years ------------------------------------------- Operating lease obligations $137,000 $77,000 $60,000
10 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, continued excess retail inventory, increase in repossessions, changes in market demand, changes in interest rates, availability of financing for retail and wholesale purchasers, realization of deferred tax assets, 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. Item 7A. Quantitative and Qualitative Disclosures About Market Risk - ------- ---------------------------------------------------------- Certain of the Company's financial instruments are subject to market risk, including interest rate and equity price risks; however, due to the makeup of our investment portfolio this market risk is considered minimal. The Company manages its exposure to these risks through its regular operating and financing activities. We do not engage in investing in or trading market risk sensitive financial instruments. We also do not purchase for investing, hedging, or for purposes "other than trading" financial instruments that are likely to expose us to significant market risk, whether interest rate, foreign currency, commodity price, or equity price risk. The Company's financial instruments are not currently subject to foreign currency or commodity risk. The Company has no financial instrument held for trading purposes. We do not have an indebtedness as of November 1, 2003. If we were to borrow from our revolving credit agreement, 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 8. Consolidated Financial Statements and Supplementary Data - ------ -------------------------------------------------------- Financial statements incorporated herein from Nobility's 2003 Annual Report to Shareholders are attached as Exhibit 13 and are listed at Part IV, Item 15(a), "Consolidated Financial Statements and Schedules." Item 9. Changes in and Disagreements with Accountants on Accounting and - ------ Financial Disclosure ------------------------------------------------------------------ As previously reported in our report on Form 8-K filed July 22, 2003, on July 15, 2003, we dismissed our auditors, PricewaterhouseCoopers LLP and appointed Tedder, James, Worden & Associates, P.A. as our new independent auditors, effective July 15, 2003. Item 9A. Controls and Procedures - ------- ----------------------- 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 - 14c and 15d - 14(o) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of August 2, 2003 (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. 11 PART III Item 10. Directors and Executive Officers of the Registrant - ------- -------------------------------------------------- Information concerning Nobility's directors is incorporated by reference pursuant to Instruction G of Form 10-K from its definitive proxy statement for the 2004 annual meeting of shareholders to be filed with the Commission pursuant to Regulation 14A on or before February 29, 2004. The following table provides the names, ages and business experience for the past five years for each of Nobility's executive officers. Executive officers are each elected for one year terms. Executive Officers - ------------------ Terry E. Trexler (64) Chairman of the Board and President; Mr. Trexler is also President of TLT; from April 1996 to March 1997, Mr. Trexler was a director of Citizens National Bank and its subsidiary, Citi-Bancshares, Inc. and was Chairman of the Board of Citizens First Bancshares, Inc. and its subsidiary, Citizens First Bank of Ocala prior to its acquisition in April 1996. Thomas W. Trexler (40) Executive Vice President and Chief Financial Officer since December 1994 and a director since February 1993; President of Prestige Insurance Services, Inc. since August 1992; President of Prestige since June 1995 and Vice President from 1991 to June 1995; director of Prestige and Vice President and director of TLT since September 1991. Edward C. Sims (57) Vice President of Engineering. Jean Etheredge (58) Secretary. Lynn J. Cramer, Jr. (58) Treasurer. Thomas W. Trexler, Executive Vice President, Chief Financial Officer and a director, is the son of Terry E. Trexler, Nobility's President and Chairman of the Board. There are no other family relationships between any directors or executive officers. Code of Ethics - -------------- We have adopted a code of ethics that applies to the principal executive officer, principal financial officer, executive vice presidents and controller. The code has been designed in accordance with provisions of the Sarbanes-Oxley Act of 2002, to promote honest and ethical conduct. The code is included as an exhibit to this annual report. Our code of ethics is available on our website at www.nobilityhomes.com. You may also obtain a copy of the Nobility Homes, Inc. Code of Ethics, at no cost, by forwarding a written request to the Secretary of Nobility at Post Office Box 1659, Ocala, Florida 34478. Item 11. Executive Compensation - ------- ---------------------- Information concerning executive compensation is incorporated by reference pursuant to Instruction G of Form 10-K from Nobility's definitive proxy statement for the 2004 annual meeting of shareholders to be filed with the Commission pursuant to Regulation 14A on or before February 29, 2004. 12 Item 12. Security Ownership of Certain Beneficial Owners and Management - ------- -------------------------------------------------------------- Information concerning security ownership of certain beneficial owners and management is incorporated by reference pursuant to Instruction G of Form 10-K from Nobility's definitive proxy statement for the 2004 annual meeting of shareholders to be filed with the Commission pursuant to Regulation 14A on or before February 29, 2004. Item 13. Certain Relationships and Related Transactions - ------- ---------------------------------------------- Information concerning certain relationships and related transactions is incorporated by reference pursuant to Instruction G of Form 10-K from Nobility's definitive proxy statement for the 2004 annual meeting of shareholders to be filed with the Commission pursuant to Regulation 14A on or before February 29, 2004. Item 14. Principal Accountant Fees and Services - ------- -------------------------------------- Information concerning principal accountant fees and services is incorporated by reference pursuant to Instruction G of Form 10-K from Nobility's definitive proxy statement for the 2004 annual meeting of shareholders to be filed with the Commission pursuant to Regulation 14A on or before February 29, 2004. PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K - ------- --------------------------------------------------------------- (a) Consolidated Financial Statements and Schedules: Report of Tedder, James, Worden & Associates, P.A. Report of PricewaterhouseCoopers LLP Consolidated Balance Sheets at November 1, 2003 and November 2, 2002 Consolidated Statements of Income for the Years Ended November 1, 2003, November 2, 2002 and November 3, 2001 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended November 1, 2003, November 2, 2002 and November 3, 2001 Consolidated Statements of Cash Flows for the Years Ended November 1, 2003, November 2, 2002 and November 3, 2001 Notes to Consolidated Financial Statements (b) Reports on Form 8-K: None (c) Exhibits: 3. (a) Nobility's Articles of Incorporation, as amended (filed as an exhibit to Nobility's Form 10-K for the fiscal year ended November 1, 1997 and incorporated herein by reference). (b) Bylaws, as amended March 28, 1994, (filed as an exhibit to Nobility's Form 10-KSB for the fiscal year ended October 29, 1994 and incorporated herein by reference.) 13 10. (a) Joint Venture Agreement with 21st Century Mortgage Corporation (filed as an exhibit to Nobility's Form 10-K for the fiscal year ended November 1, 1997 and incorporated herein by reference). (b) Stock Incentive Plan (filed as an exhibit to Nobility's registration statement on Form S-8, registration no. 333-44769, and incorporated herein by reference). (c) Revolving Credit Agreement dated April 18, 2001 with SunTrust Bank, a Georgia state-chartered bank (filed as an exhibit to Nobility's Form 10-K for the fiscal year ended November 3, 2001 and incorporated herein by reference). (d) Agreement dated September 7, 2001 between Nobility and Terry E. Trexler relating to use of life insurance proceeds (filed as an exhibit to Nobility's Form 10-K for the fiscal year ended November 3, 2001 and incorporated herein by reference). 13. Consolidated Financial Statements from 2003 Annual Report to Shareholders. 14. Code of Ethics 21. Subsidiaries of Nobility. 23. (a) Consent of Tedder, James, Worden & Associates, P.A. (b) Consent of PricewaterhouseCoopers LLP. 31. (a) Written Statement 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) Written Statement 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. 14 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) 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: January 28, 2003 By: /s/ Terry E. Trexler ---------------------------------------- Terry E. Trexler, Chairman, President and Chief Executive Officer DATE: January 28, 2003 By: /s/ Thomas W. Trexler ---------------------------------------- Thomas W. Trexler, Executive Vice President, and Chief Executive Officer DATE: January 28, 2003 By: /s/ Lynn J. Cramer, Jr. ---------------------------------------- Lynn J. Cramer, Jr., Treasurer and Principal Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: DATE: January 28, 2003 By: /s/ Terry E. Trexler ---------------------------------------- Terry E. Trexler, Director, DATE: January 28, 2003 By: /s/ Richard C. Barberie ---------------------------------------- Richard C. Barberie, Director, DATE: January 28, 2003 By: /s/ Robert Holliday. ---------------------------------------- Robert Holiday, Director DATE: January 28, 2003 By: /s/ Robert P. Saltsman ---------------------------------------- Robert P. Saltsman, Director, DATE: January 28, 2003 By: /s/ Thomas W. Trexler ---------------------------------------- Thomas W. Trexler, Director, 15 Exhibit Index 3. (a) Nobility's Articles of Incorporation, as amended (filed as an exhibit to Nobility's Form 10-K for the fiscal year ended November 1, 1997 and incorporated herein by reference). (b) Bylaws, as amended March 28, 1994, (filed as an exhibit to Nobility's Form 10-KSB for the fiscal year ended October 29, 1994 and incorporated herein by reference.) 10. (a) Joint Venture Agreement with 21st Century Mortgage Corporation (filed as an exhibit to Nobility's Form 10-K for the fiscal year ended November 1, 1997 and incorporated herein by reference). *(b) Stock Incentive Plan (filed as an exhibit to Nobility's registration statement on Form S-8, registration no. 333-44769, and incorporated herein by reference). (c) Revolving Credit Agreement dated April 18, 2001 with SunTrust Bank, a Georgia state-chartered bank (filed as an exhibit to Nobility's Form 10-K for the fiscal year ended November 3, 2001 and incorporated herein by reference). (d) Agreement dated September 7, 2001 between Nobility and Terry E. Trexler relating to use of life insurance proceeds (filed as an exhibit to Nobility's Form 10-K for the fiscal year ended November 3, 2001 and incorporated herein by reference). 13. Consolidated Financial Statements from 2003 Annual Report to Shareholders. 14. Code of Ethics 21. Subsidiaries of Nobility. 23. (a) Consent of Tedder, James, Worden & Associates, P.A. (b) Consent of PricewaterhouseCoopers LLP. 31. (a) Written Statement 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) Written Statement 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. _____________________ * Management Remuneration Plan. 16 EX-13 3 dkm63i.txt EXHIBIT 13 - CONSOLIDATED FINANCIAL STATEMENTS TEDDER, JAMES, WORDEN & ASSOCIATES, P.A. CERTIFIED PUBLIC ACCOUNTANTS & BUSINESS ADVISORS AN INDEPENDENTLY OWNED MEMBER OF THE RSM MCGLADREY NETWORK Independent Auditors' Report To the Board of Directors and Stockholders of Nobility Homes, Inc. We have audited the accompanying consolidated balance sheet of Nobility Homes, Inc. and Subsidiaries (the "Company") as of November 1, 2003, and the related consolidated statements of income and comprehensive income, changes in stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nobility Homes, Inc. and Subsidiaries as of November 1, 2003, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for goodwill as of November 3, 2002 as required by the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. /s/ TEDDER, JAMES, WORDEN & ASSOCIATES, P.A. Orlando, Florida December 17, 2003 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS PRICEWATERHOUSECOOPERS - -------------------------------------------------------------------------------- PricewaterhouseCoopers LLP 101 East Kennedy Boulevard Suite 1500 Tampa FL 33602-5147 Telephone (813) 229 0221 Facsimile (813) 229 3646 Report of Independent Certified Public Accountants To the Board of Directors and Stockholders of Nobility Homes, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Nobility Homes, Inc. and its subsidiaries (the "Company") at November 2, 2002 and November 3, 2001, and the results of their operations and their cash flows for each of the three years in the period ended November 2, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the over-all financial presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP December 13, 2002 2 CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- November 1, 2003 and November 2, 2002
2003 2002 Assets Current assets: Cash and cash equivalents $ 10,641,748 $ 12,481,711 Short-term investments (Note 2) 342,550 - Accounts receivable 2,096,128 1,074,481 Inventories 6,557,659 6,589,076 Deferred income taxes 485,716 608,700 Prepaid expenses and other current assets 501,014 368,129 -------------------- --------------------- Total current assets 20,624,815 21,122,097 Property, plant and equipment, net 3,136,506 2,948,096 Long-term investments (Note 2) 5,249,825 - Investment in joint venture - Majestic 21 1,203,804 1,020,056 Deferred income taxes 15,050 22,700 Other assets 2,474,905 2,383,425 -------------------- --------------------- Total assets $ 32,704,905 $ 27,496,374 -------------------- ---------------------
The accompanying notes are an integral part of these financial statements. 3 CONSOLIDATED BALANCE SHEETS (CONTINUED) - -------------------------------------------------------------------------------- November 1, 2003 and November 2, 2002
2003 2002 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 1,484,997 $ 1,178,395 Accrued expenses and other current liabilities 2,988,131 1,834,965 Accrued compensation 524,784 704,122 Income taxes payable 890,675 - ------------------- -------------------- Total current liabilities 5,888,587 3,717,482 ------------------- -------------------- Commitments and contingent liabilities (Note 14) 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 in 2003 and 2002 536,491 536,491 Additional paid-in capital 8,613,640 8,629,144 Retained earnings 25,500,362 22,421,883 Accumulated other comprehensive income 35,516 - Less treasury stock at cost, 1,354,663 and 1,347,694 shares, respectively, in 2003 and 2002 (7,869,691) (7,808,626) ------------------- -------------------- Total stockholders' equity 26,816,318 23,778,892 ------------------- -------------------- Total liabilities and stockholders' equity $ 32,704,905 $ 27,496,374 ------------------- --------------------
The accompanying notes are an integral part of these financial statements. 4 CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME - -------------------------------------------------------------------------------- For the years ended November 1, 2003, November 2, 2002 and November 3, 2001
2003 2002 2001 Net sales $ 39,205,481 $ 37,872,138 $ 30,278,768 Net sales - related parties 23,675 44,325 8,895 -------------------- ------------------- -------------------- Total net sales 39,229,156 37,916,463 30,287,663 Cost of goods sold (29,362,197) (28,114,834) (21,851,960) -------------------- ------------------- -------------------- Gross profit 9,866,959 9,801,629 8,435,703 Selling, general and administrative expenses (5,789,361) (5,871,930) (5,435,803) -------------------- ------------------- -------------------- Operating income 4,077,598 3,929,699 2,999,900 -------------------- ------------------- -------------------- Other income: Interest income 211,018 196,026 365,029 Undistributed earnings in joint venture - Majestic 21 220,148 291,081 285,534 Gain on recovery of TLT, Inc. note receivable (Note 3) - 320,764 200,000 Receipt of stock in connection with demutualization of insurance company 167,930 - - Miscellaneous 56,785 72,332 62,889 -------------------- ------------------- -------------------- 655,881 880,203 913,452 -------------------- ------------------- -------------------- Income before provision for income taxes 4,733,479 4,809,902 3,913,352 Provision for income taxes (1,655,000) (1,675,000) (1,358,000) -------------------- ------------------- -------------------- Income before cumulative effect adjustment 3,078,479 3,134,902 2,555,352 Cumulative effect adjustment, net of tax - - (77,439) -------------------- ------------------- -------------------- Net income 3,078,479 3,134,902 2,477,913 Other comprehensive income, net of tax Unrealized investment gains 35,516 - - -------------------- ------------------- -------------------- Comprehensive income $ 3,113,995 $ 3,134,902 $ 2,477,913 -------------------- ------------------- -------------------- Average shares outstanding Basic 3,996,424 4,107,748 4,200,863 Diluted 4,021,996 4,130,464 4,286,778 Earnings per share Basic $ 0.77 $ 0.76 $ 0.59 Diluted $ 0.77 $ 0.76 $ 0.58
The accompanying notes are an integral part of these financial statements. 5 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------- For the years ended November 1, 2003, November 2, 2002 and November 3, 2001
Accumulated Additional Other Common Common Paid-in Retained Comprehensive Treasury Stock Shares Stock Capital Earnings Income Stock Total Balance at 11/4/2000 4,421,938 $ 536,491 $ 8,629,144 $ 16,809,068 $ - $ (4,949,732) $21,024,971 Purchase of treasury stock (277,500) - - - - (1,779,182) (1,779,182) Net income - - - 2,477,913 - - 2,477,913 ------------- ------------ ------------- ---------------- ------------ ----------------- ------------- Balance at 11/3/2001 4,144,438 536,491 8,629,144 19,286,981 - (6,728,914) 21,723,702 Purchase of treasury stock (127,225) - - - - (1,079,712) (1,079,712) Net income - - - 3,134,902 - - 3,134,902 ------------- ------------ ------------- ---------------- ------------ ----------------- ------------- Balance at 11/2/2002 4,017,213 536,491 8,629,144 22,421,883 - (7,808,626) 23,778,892 Purchase of treasury stock (29,700) - - - - (260,158) (260,158) Exercise of employee stock options 19,635 - (16,759) - - 172,003 155,244 Payment of employee benefit plan expenses with treasury stock 3,096 - 1,255 - - 27,090 28,345 Unrealized investment gains - - - - 35,516 - 35,516 Net income - - - 3,078,479 - - 3,078,479 ------------- ------------ ------------- ---------------- ------------ ----------------- ------------- Balance at 11/1/2003 4,010,244 $ 536,491 $ 8,613,640 $ 25,500,362 $ 35,516 $ (7,869,691) $26,816,318 ------------- ------------ ------------- ---------------- ------------ ----------------- -------------
The accompanying notes are an integral part of these financial statements. 6 CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- For the years ended November 1, 2003, November 2, 2002 and November 3, 2001
2003 2002 2001 Cash flows from operating activities: Net income $ 3,078,479 $ 3,134,902 $ 2,477,913 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 232,377 236,176 200,458 Deferred income taxes 130,634 110,800 116,500 Undistributed earnings in joint venture - Majestic 21 (220,148) (291,081) (285,534) Distributions from joint venture - Majestic 21 36,400 73,200 108,000 Increase in cash surrender value of life insurance (91,480) (89,529) (92,328) Payment of employee benefit plan expenses with treasury stock 28,345 - - Gain on recovery of TLT, Inc. note receivable - (320,764) (200,000) Cumulative effect of accounting change - - 77,439 Decrease (increase) in: Accounts receivable - trade (1,021,647) (700,336) (344,075) Inventories 31,417 1,017,835 4,285 Prepaid expenses and other current assets (132,885) (106,192) (94,874) (Decrease) increase in: Accounts payable 306,602 64,151 88,780 Accrued expenses and other current liabilities 1,153,166 (331,741) 735,164 Accrued compensation (179,338) 293,216 (112,975) Income taxes payable 890,675 (325,553) 298,003 ------------------ ----------------- ------------------ Net cash provided by operating activities 4,242,597 2,765,084 2,976,756 ------------------ ----------------- ------------------ Cash flows from investing activities: Purchase of property, plant and equipment (420,787) (529,437) (220,684) Collection of TLT, Inc. note receivable - 320,764 200,000 ------------------ ----------------- ------------------ Net cash used in investing activities (420,787) (208,673) (20,684) ------------------ ----------------- ------------------ Cash flows from financing activities: Purchase of investments (5,556,859) - - Purchase of treasury stock (260,158) (1,079,712) (1,779,182) Proceeds from exercise of employee stock options 155,244 - - ------------------ ----------------- ------------------ Net cash used in investing activities (5,661,773) (1,079,712) (1,779,182) ------------------ ----------------- ------------------ Net (decrease) increase in cash and cash equivalents (1,839,963) 1,476,699 1,176,890 Cash and cash equivalents at beginning of year 12,481,711 11,005,012 9,828,122 ------------------ ----------------- ------------------ Cash and cash equivalents at end of year $ 10,641,748 $ 12,481,711 $ 11,005,012 ------------------ ----------------- ------------------ Supplemental disclosure of cash flow information Interest paid $ - $ - $ - ------------------ ----------------- ------------------ Income taxes paid $ 620,000 $ 2,227,000 $ 884,000 ------------------ ----------------- ------------------
The accompanying notes are an integral part of these financial statements. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- I. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS AND PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Nobility Homes, Inc. ("Nobility"), its wholly-owned subsidiary, Prestige Home Centers, Inc. ("Prestige") and Prestige's wholly-owned subsidiaries, Mountain Financial, Inc., an independent insurance agency and mortgage broker, and Majestic Homes, Inc., (collectively the "Company"). The Company is engaged in the manufacture and sale of manufactured homes to various dealerships, including its own retail sales centers, and manufactured housing communities throughout Florida. The Company has two manufacturing plants located in and near Ocala, Florida. Prestige currently operates seventeen Florida retail sales centers: Ocala (3), Tallahassee, St. Augustine, Tampa, Chiefland, Lake City, Auburndale, Jacksonville, Hudson, Inverness, Fort Walton, Pace, Tavares, Panama City, and Yulee. All intercompany accounts and transactions have been eliminated in consolidation. FISCAL YEAR The Company's fiscal year ends on the first Saturday on or after October 31. The years ended November 1, 2003, November 2, 2002 and November 3, 2001 consisted of fifty-two week periods. CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. As of November 1, 2003 and November 2, 2002, approximately $8,815,000 and $10,139,000, respectively, of the cash and cash equivalents were held in the form of certificates of deposit and governmental securities. All of the governmental securities are held by one trustee bank, are backed by letters of credit provided by the issuers and are due on demand at the original purchase price paid by the Company. INVESTMENTS The Company's investments consist of municipal and other debt securities as well as equity securities of a public company. Investments with maturities of less than one year are classified as short-term investments. Debt securities that the Company has the ability and intent to hold until maturity are accounted for as held-to-maturity securities and are carried at amortized cost. The Company's equity investment in a public company is classified as available-for-sale and carried at fair value. Unrealized gains on the available-for-sale securities, net of taxes, are recorded in accumulated other comprehensive income. 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. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost and depreciated over their estimated useful lives using the straight-line method. Routine maintenance and repairs are charged to expense when incurred. Major replacements and improvements are capitalized. Gains or losses are credited or charged to earnings upon disposition. INVESTMENT IN JOINT VENTURE -- MAJESTIC 21 The Company owns a 50% interest in a joint venture engaged in providing mortgage financing on manufactured homes. This investment is accounted for using the equity method of accounting (see Note 3). IMPAIRMENT OF LONG-LIVED ASSETS In the event that facts and circumstances indicate that the carrying value of a long-lived asset may be impaired, an evaluation of recoverability is performed by comparing the estimated future undiscounted cash flows associated with the asset to the asset's carrying amount to determine if a writedown is required. If such evaluations indicate that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values. 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- GOODWILL - ADOPTION OF FAS STATEMENT 142 Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired in connection with business acquisitions. The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, ("FAS 142") effective November 3, 2002. FAS 142 requires entities to assess the fair value of the net assets underlying all acquisition-related goodwill on a reporting unit basis beginning in fiscal year 2003. When the fair value is less than the related goodwill value, entities are required to reduce the amount of goodwill. The approach to evaluating the recoverability of goodwill as outlined FAS 142 requires the use of valuation techniques utilizing estimates and assumptions about projected future operating results and other variables. FAS 142 also requires entities to discontinue the amortization of goodwill, including amortization of goodwill acquired in past business combinations. Accordingly, the Company no longer amortized goodwill beginning in fiscal year 2003 (see Note 6). At November 1, 2003 and November 2, 2002, goodwill, net of accumulated amortization, totaled $298,708. Accumulated amortization of goodwill totaled $185,669 at November 1, 2003 and November 2, 2002. Amortization of goodwill totaled $29,000 and $25,000 for fiscal years 2002 and 2001, respectively. WARRANTY COSTS The Company provides for a warranty as the manufactured homes are sold. Amounts related to these warranties are immaterial for all periods presented. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates fair value because of the short maturity of those instruments. The carrying amount and fair market value of the Company's investments at November 1, 2003 totaled $5,592,375 and $5,604,596, respectively. STOCK-BASED COMPENSATION SFAS No. 123, Accounting for Stock-Based Compensation ("FAS 123"), encourages the use of a fair-value method of accounting for stock-based awards under which the fair value of stock options is determined on the date of grant and expensed over the vesting. As allowed by SFAS No. 123, we have elected to account for our stock-based compensation plans under an intrinsic value method that requires compensation expense to be recorded only if, on the grant date, the current market price of our common stock exceeds the exercise price the employee must pay for the stock. Our policy is to grant stock options at the fair market value of our underlying stock at the date of grant. The Company has adopted the disclosure-only provisions of FAS 123. Accordingly, no compensation cost has been recognized for the stock option plans. Had compensation cost for the Company's Plan been determined based on the fair value at the grant dates, as prescribed by FAS 123, the Company's net income and earnings per share would have been as follows: 2003 2002 2001 ---- ---- ---- Net income, as reported $3,078,479 $3,134,902 $2,477,913 Add: Stock-based employee expense included in net income, net of related tax effects 18,424 - - Deduct: Total stock-based employee compensation expense determined under fair value based method, net of related tax effects (32,468) (27,532) (49,153) --------- --------- --------- Pro forma net income $3,064,435 $3,107,370 $2,428,760 --------- --------- --------- 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Basic earnings per share: As reported $ 0.77 $ 0.76 $ 0.59 Pro forma $ 0.77 $ 0.76 $ 0.58 Diluted earnings per share: As reported $ 0.77 $ 0.76 $ 0.58 Pro forma $ 0.76 $ 0.75 $ 0.57 REVENUE RECOGNITION Effective November 5, 2000, the Company adopted the Securities Exchange Commission (SEC) Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101") and recorded a charge of approximately $77,000, or 2 cents per diluted share, as a cumulative effect of an accounting change as of that date. The pro forma effects of this accounting change for the prior periods have not been presented because information related to the installation and set up of homes was not previously maintained in the Company's accounting systems, and thus the amounts are not readily determinable. Historically, the Company recognized revenue for retail cash sales when the cash payment was received, construction of the home was complete, title had passed to the retail homebuyer and funds had been deposited into the Company's accounts. In the case of credit sales which represent the majority of retail sales, revenue was recognized when a down payment was received and the home buyer entered into an installment sales contract, construction of the home was complete, title had passed to the retail home buyer, and funds had been received from the finance company and deposited into the Company's accounts. As a result of adopting the provisions of SAB 101 during 2001, the Company now recognizes retail sales based upon occurrence of all of the above conditions plus delivery and set up of the home at the retail homebuyer's site, and completion of any other significant obligations. Approximately 48% of these installment sales contracts, which are normally payable over 84 to 360 months, are financed by Majestic 21, the Company's joint venture financing partnership (see Note 3). Historically, for wholesale home sales to independent retailers, the Company recognized revenue based upon shipment of the home since risk of loss passed to the independent retailer at that time. As a result of adopting the provisions of SAB 101 during 2001, the Company now recognizes wholesale home sales to independent retailers 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 retailer. For wholesale shipments to independent retailers, the Company has no obligation to set up the home or to complete any other significant obligations. Through its wholly-owned subsidiary, Mountain Financial, Inc., an independent insurance agency and mortgage broker, the Company offers credit life and homeowners insurance, service warranty products, and brokering of mortgage loans to the retail home buyer. REBATE PROGRAM The Company has a rebate program for all dealers which pays rebates based upon sales volume to the dealers. Volume rebates are recorded as a reduction of sales in the accompanying consolidated financial statements. The rebate liability is calculated and recognized as eligible homes are sold based upon factors surrounding the activity and prior experience of specific dealers and is included in other accrued expenses in the accompanying consolidated balance sheets. ADVERTISING Advertising for Prestige retail sales centers consists primarily of newspaper, radio and television advertising. All costs are expensed as incurred. Advertising expense amounted to approximately $470,000, $472,000 and $508,000 for fiscal years 2003, 2002 and 2001, respectively. INCOME TAXES Deferred tax assets and liabilities are determined based on differences between financial reporting and taxes bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- EARNINGS PER SHARE These financial statements include "basic" and "diluted" earnings per share information for all periods presented. 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 common shares. Diluted earnings per share calculations include dilutive common share stock options of 25,572, 22,716, and 85,915 for fiscal years 2003, 2002 and 2001, respectively. Stock options to purchase 7,810, 113,251 and 142,340 shares of common stock for the fiscal years 2003, 2002, and 2001, respectively, were not included in the computation of diluted earnings per share because their inclusion would have been anti-dilutive. CONCENTRATION OF CREDIT RISK The Company's customers are concentrated in the State of Florida. One customer, a multi-park owner, accounted for over 12% and 11% of the Company's sales during the fiscal years ended 2003 and 2002, respectively. The Company had an approximate $1,807,000 and $835,000 receivable balance with this customer at November 1, 2003 and November 2, 2002, respectively. There were no other customers that accounted for over 10% of the Company's sales during fiscal 2003 or 2002. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. SHIPPING AND HANDLING COSTS Net sales include the revenue related to shipping and handling charges billed to customers. The related costs associated with shipping and handling are included as a component of cost of goods sold. COMPREHENSIVE INCOME Comprehensive income includes net income as well as additional other comprehensive income. The Company's other comprehensive income consists of unrealized gains on available-for-sale securities, net of tax. RECENT ACCOUNTING PRONOUNCEMENTS Effective November 3, 2002, the Company adopted FAS 142, Goodwill and Other Intangible Assets. FAS 142 requires entities to assess the fair value of the net assets underlying all acquisition-related goodwill on a reporting unit basis (see Note 6). In August 2001, the FASB issued Statement No. 144 ("FAS 144"), Accounting for the Impairment or Disposal of Long-Lived Assets. FAS 144 supersedes FAS 121 and applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30 ("APB 30"), Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. FAS 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. FAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and generally, its provisions are to be applied prospectively. The adoption of FAS 144 in fiscal year 2003 had no material impact on the Company's reported consolidated results of operations, financial position or cash flows. In December 2002, the FASB issued Statement No. 148 ("FAS 148"), Accounting for Stock-Based Compensation- Transition and Disclosure. FAS 148 amends FAS 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of FAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. FAS 148 is effective for financial statements for fiscal years ending after December 15, 2002. The Company adopted this Statement in fiscal year 2003 and had no significant impact from this adoption. 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Financial Accounting Standards Board Interpretation ("FIN") 46, Consolidation of Variable Interest Entities, was issued in January 2003. 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 entities would be required nor would it have a material impact on its consolidated financial statements. 2. INVESTMENTS Investments in held-to-maturity and available-for-sale debt and equity securities were as follows at November 1, 2003:
Gross Gross Unrealized Unrealized Estimated Cost Gains Losses Fair Value -------------- ------------- --------------- --------------- Held-to-maturity securities (carried at amortized cost): Municipal securities $ 5,375,721 $ 31,487 $ (19,266) $ 5,387,942 Available-for-sale securities (carried at fair value): Equity securities in a public company 165,519 51,135 - 216,654 -------------- ------------- --------------- --------------- Total investments $ 5,541,240 $ 82,622 $ (19,266) $ 5,604,596 -------------- ------------- --------------- ---------------
The fair values were estimated based on quoted market prices using current market rates. Contractual maturities of held-to-maturity debt securities at November 1, 2003 were as follows: Estimated Cost Fair Value ----------------- ----------------- Due in less than one year $ 125,896 $ 125,559 Due in 1 - 5 years 3,049,120 3,039,947 Due in 5 - 10 years 2,200,705 2,222,436 ----------------- ----------------- $ 5,375,721 $ 5,387,942 ----------------- ----------------- There were no sales of available-for-sale securities during the fiscal year ended 2003. A summary of the carrying values and balance sheet classification of all investments in debt and equity securities including held-to-maturity and available-for-sale securities disclosed above was as follows at November 1, 2003:
Held-to-maturity debt securities $ 125,896 Available-for-sale equity securities 216,654 ----------------- Short-term investments 342,550 Held-to-maturity debt securities included in long-term investments 5,249,825 ----------------- Total investments $ 5,592,375 -----------------
12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 3. RELATED PARTY TRANSACTIONS RECEIVABLE FROM OFFICER FOR LIFE INSURANCE PREMIUMS The Company funded premiums for the President on two split-dollar life insurance policies with a face value of $1,000,000. These policies insure the President and name his family as beneficiaries. The cumulative premiums advanced under these arrangements amounted to approximately $597,000 at November 1, 2003 and November 2, 2002. The advances are noninterest bearing. Net cash surrender value of approximately $1,128,000 and $1,062,000 at November 1, 2003 and November 2, 2002, respectively, was pledged to the Company as collateral for advances under this arrangement. Subsequent to November 1, 2003, the advances were repaid (see Note 16). AFFILIATED ENTITIES TLT, Inc. The President, Chairman of the Board of Directors, a 54% stockholder of the Company, ("President") and the Executive Vice President, an 11% stockholder of the Company, each own 50% of the stock of TLT, Inc. TLT, Inc. is the general partner of two limited partnerships which are developing manufactured housing communities in Central Florida (the "TLT Communities"). The President owns between a 24.75% and a 49.5% direct and indirect interests in each of these limited partnerships. The Executive Vice President owns between a 49.5% and a 57.75% direct and indirect interests in each of these limited partnerships. The TLT Communities have purchased manufactured homes exclusively from the Company since 1990. The Company sells manufactured homes to unaffiliated customers under various terms which require payment between 7 and 90 days from the date of shipment. The Company charges the same sales price to both unaffiliated customers and related party customers. The Company's net sales to TLT, Inc. and TLT Communities were $23,675, $44,325 and $8,895 in fiscal 2003, 2002 and 2001, respectively. Beginning in 1990 and continuing into 1993, the Company made advances to TLT, Inc. to fund working capital needs of the TLT Communities in return for exclusive sales rights at these communities. These advances are non-interest bearing and were fully reserved in fiscal 1991. TLT paid approximately $0, $321,000 and $200,000 to the Company to reduce these outstanding advances in fiscal 2003, 2002 and 2001, respectively. The amounts collected have been recorded as a gain on recovery of the fully reserved TLT, Inc. note receivable in the accompanying consolidated financial statements. The balance of the reserved advances at November 1, 2003 was approximately $232,000. The Company provides certain accounting services for TLT, Inc. and the TLT Communities at no charge in return for exclusive sales rights at these communities. Investment in Joint Venture - Majestic 21 During fiscal 1997, the Company contributed $250,000 for a 50% interest in a joint venture engaged in providing mortgage financing on manufactured homes. This investment is accounted for under the equity method of accounting. The following is summarized financial information of the Company's joint venture: 2003 2002 2001 Total Assets $ 6,518,794 $ 1,916,112 $ 5,692,176 Total Liabilities $ 4,163,661 $ - $ 4,211,826 Total Equity $ 2,355,133 $ 1,916,112 $ 1,480,350 Net Income $ 440,296 $ 582,162 $ 571,068 Distributions received from the joint venture amounted to $36,400, $73,200 and $108,000 in fiscal years 2003, 2002 and 2001, respectively. 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 4. INVENTORIES Inventories at November 1, 2003 and November 2, 2002 are summarized as follows: 2003 2002 Raw materials $ 680,036 $ 555,231 Work-in-process 109,947 113,375 Finished homes 5,272,867 5,525,607 Pre-owned manufactured homes 401,728 320,564 Model home furniture 93,081 74,299 ---------------- ---------------- $ 6,557,659 $ 6,589,076 ---------------- ---------------- The finished homes, pre-owned manufactured homes and model home furniture are maintained at the Prestige retail sales centers. 5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, along with their estimated useful lives and related accumulated depreciation, as of November 1, 2003 and November 2, 2002 are summarized as follows:
Range of Lives in Years 2003 2002 Land - $ 1,235,247 $ 1,235,247 Land and leasehold improvements 10-20 528,874 503,867 Buildings and improvements 15-40 2,101,623 2,031,038 Machinery and equipment 3-10 1,002,362 730,335 Furniture and fixtures 3-10 576,159 541,159 ----------------- ----------------- 5,444,265 5,041,646 Less accumulated depreciation (2,307,759) (2,093,550) ----------------- ----------------- $ 3,136,506 $ 2,948,096 ================= =================
Depreciation expense totaled approximately $232,000, $207,000 and $174,000 for fiscal years 2003, 2002 and 2001, respectively. 6. Goodwill Effective November 3, 2002, the Company adopted FAS 142, Goodwill and Other Intangible Assets. Under FAS 142, goodwill is no longer amortized but rather tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. This new approach requires the use of valuation techniques and methodologies significantly different from the undiscounted cash flow policy previously followed by the Company. The goodwill was tested for impairment during the first quarter of fiscal year 2003 and as a result of this valuation process, the Company concluded that there was no impairment of goodwill. Prior to the adoption of FAS 142, the Company amortized goodwill on a straight-line basis over 15 years. Had the Company accounted for goodwill consistent with the provisions of FAS 142 in prior years, the Company's net income, basic and diluted earnings per share would have been affected as follows: 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
Fiscal Years Ended -------------------------------------------------------- 2003 2002 2001 Net income, as reported $ 3,078,479 $ 3,134,902 $ 2,477,913 Add: goodwill amortization, net of tax - 18,900 16,300 ---------------- ----------------- ----------------- Adjusted net income $ 3,078,479 $ 3,153,802 $ 2,494,213 ---------------- ----------------- -----------------
There would have been no effect on basic or diluted earnings per share except for basic earnings per share in fiscal 2002 would have been $0.77 vs. $0.76 actual had the Company accounted for goodwill consistent with the provisions of FAS 142 in prior years. 7. OTHER ASSETS Other assets at November 1, 2003 and November 2, 2002 are comprised of the following:
2003 2002 Cash surrender value of life insurance $ 1,579,173 $ 1,487,693 Receivable from officer for life insurance premiums (see Notes 3 and 16) 597,024 597,024 Goodwill, net (see Note 6) 298,708 298,708 ------------------ --------------- $ 2,474,905 $ 2,383,425 ------------------ ---------------
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities at November 1, 2003 and November 2, 2002 are comprised of the following: 2003 2002 Customer deposits $ 2,230,633 $ 1,117,265 Accrued sales taxes 149,481 119,674 Accrued warranty expense 165,000 165,000 Other accrued expenses 443,017 433,026 --------------------- ----------------- $ 2,988,131 $ 1,834,965 --------------------- ----------------- 9. INCOME TAXES The provision for income taxes for the years ended November 1, 2003, November 2, 2002 and November 3, 2001 consists of the following:
2003 2002 2001 Current tax expense: Federal $ 1,366,600 $ 1,414,000 $ 1,103,800 State 157,800 150,200 137,700 ================= ================ =============== 1,524,400 1,564,200 1,241,500 Deferred tax expense 130,600 110,800 116,500 ----------------- ---------------- --------------- Provision for income taxes $ 1,655,000 $ 1,675,000 $ 1,358,000 ================= ================ ===============
15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The following table shows the reconciliation between the statutory federal income tax rate and the actual provision for income taxes for the years ended November 1, 2003, November 2, 2002 and November 3, 2001:
2003 2002 2001 Provision - federal statutory tax rate $ 1,609,400 $ 1,620,000 $ 1,330,500 Increase (decrease) resulting from: State taxes, net of federal tax benefit 115,000 173,000 142,100 Permanent differences: Tax exempt interest (75,500) (60,500) (92,400) Other 6,100 (57,500) (22,200) ---------------- --------------- --------------- Provision for income taxes $ 1,655,000 $ 1,675,000 $ 1,358,000 ---------------- --------------- ---------------
The types of temporary differences between the tax bases of assets and liabilities and their financial reporting amounts and the related deferred tax assets and deferred tax liabilities are as follows: 2003 2002 Gross deferred tax assets: Allowance for doubtful accounts $ 87,300 $ 87,300 Inventories 54,000 79,400 Other assets 336,300 447,000 Accrued expenses 62,100 62,100 --------------- -------------- Total deferred tax assets 539,700 675,800 Gross deferred tax liabilities: Depreciation (38,934) (44,400) --------------- -------------- Net deferred tax asset $ 500,766 $ 631,400 =============== ============== The Company believes that it is more likely than not that the net deferred tax assets of $500,766 at November 1, 2003 will be realized on future tax returns, primarily from the generation of future taxable income. 10. FINANCING AGREEMENTS REVOLVING CREDIT AGREEMENT The Company maintains a revolving credit agreement (the "Agreement") with a bank which provides for borrowings of up to $4,000,000. The Agreement provides for interest at the bank prime rate less 0.5% (3.50% at November 1, 2003) on the outstanding balance. The Agreement is uncollateralized, due on demand and includes certain restrictive covenants relating to tangible net worth and acquiring new debt. There are no commitment fees or compensating balance arrangements associated with the Agreement. At November 1, 2003 and November 2, 2002, there were no borrowings outstanding under the Agreement. 11. STOCKHOLDERS' EQUITY Authorized preferred stock may be issued in series with rights and preferences designated by the Board of Directors at the time it authorizes the issuance of such stock. The Company has never issued any preferred stock. Treasury stock is recorded at cost and is presented as a reduction of stockholders' equity in the accompanying consolidated financial statements. The Company repurchased 29,700, 127,225 and 277,500 shares of its common stock during fiscal years 2003, 2002 and 2001, respectively. These shares were acquired for general corporate purposes. The Company reissued 22,731 shares of treasury stock during fiscal year 2003 for employee stock option exercises and the payment of employee benefit plan expenses. 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 12. STOCK OPTION PLAN During fiscal 1996, the Company's Board of Directors adopted a stock incentive plan (the "Plan"), which authorizes the issuance of options to purchase common stock. The Plan provides for the issuance of options to purchase up to 495,000 shares of common stock to employees and directors. Options granted are exercisable after one or more years and expire no later than six to ten years from the date of grant or upon termination of employment, retirement or death. Options available for future grant were 294,440 and 279,840 at November 1, 2003 and November 2, 2002. Options were held by 13 persons at November 1, 2003. Information with respect to options granted at November 1, 2003 is as follows:
Number of Stock Option Weighted Average Shares Price Range Exercise Price ----------------- ------------------ ------------------- Outstanding at 11/4/2000 219,340 $ 7.73 - 12.81 $ 8.26 Granted 12,350 5.50 - 6.00 5.86 Exercised - - - Canceled (1,500) 6.00 6.00 Outstanding at 11/3/2001 230,190 5.50 - 12.81 8.12 Granted 8,950 8.30 8.30 Exercised - - - Canceled (23,980) 7.73 - 12.81 8.62 Outstanding at 11/2/2002 215,160 5.50 - 12.81 8.10 Granted 11,550 8.83 8.83 Exercised (19,635) 7.73 7.73 Canceled (6,515) 5.50 - 12.81 7.93 Outstanding at 11/1/2003 200,560 $ 5.50 - 12.81 $ 8.18
The following table summarizes information about the Plan's stock options at November 1, 2003:
Options Outstanding Options Exercisable ----------------------------------------------------------- ---------------------------------- Weighted Average Remaining Weighted Weighted Shares Contractual Life Average Shares Average Exercise prices Outstanding (years) Exercise Price Outstanding Exercise Price - -------------------- --------------- ------------------------ ----------------- ---------------- ---------------- $ 5.50 2,300 2 $ 5.50 2,300 $ 5.50 6.00 5,950 3 6.00 5,950 6.00 8.03 165,000 3 8.03 165,000 8.03 8.30 7,950 4 8.30 7,950 8.30 8.83 11,550 5 8.83 - 8.83 12.81 7,810 1 12.81 7,810 12.81 --------------- ------------------------ ----------------- -------------- ---------------- 200,560 3 $ 8.18 189,010 $ 8.14 =============== ======================== ================= ============== ================
17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The fair value of each option is determined using the Black-Scholes option-pricing model, which values options based on the stock price at the grant date, the expected life of the option, the estimated volatility of the stock, expected dividend payments, and the risk-free interest rate over the expected life of the option. The dividend yield was calculated by dividing the current annualized dividend by the option exercise price for each grant. The expected volatility was determined considering stock prices for the fiscal year the grant occurred and prior fiscal years, as well as considering industry volatility data. The risk-free interest rate was the rate available on zero coupon U.S. government obligations with a term equal to the remaining term for each grant. The expected life of the option was estimated based on the exercise history from previous grants. The weighted-average assumptions used in the Black-Scholes model were as follows:
Stock Option Granted in Fiscal Year ------------------------------------------------- 2003 2002 2001 ------------- --------------- --------------- Risk-free interest rate 3.3% 4.7% 6.6% Expected volatility of stock 45% 45% 45% Dividend yield 1.1% 0% 0% Expected option life 2 - 4 years 2 - 4 years 2 - 4 years
13. EMPLOYEE BENEFIT PLAN The Company has a defined contribution retirement plan (the "Plan") qualifying under Section 401(k) of the Internal Revenue Code. The Plan covers employees who have met certain service requirements. The Company makes a matching contribution of 15% of an employee's contribution up to a maximum of 3% of an employee's compensation. The Company's contribution charged to operations was approximately $28,000, $6,000 and $18,000 in fiscal years 2003, 2002 and 2001, respectively. 14. COMMITMENTS AND CONTINGENT LIABILITIES OPERATING LEASES The Company leases the property for the Prestige retail sales centers from various unrelated entities under operating lease agreements expiring through November 2006. The Company also leases certain equipment under unrelated operating leases. These leases have varying renewal options. Total rent expense for operating leases, including those with terms of less than one year, amounted to approximately $639,000, $585,000 and $582,000 in fiscal years 2003, 2002 and 2001, respectively. Future minimum payments by year and in the aggregate, under the aforementioned leases and other noncancelable operating leases with initial or remaining terms in excess of one year, as of November 1, 2003 are as follows: Fiscal Year Ending 2004 $77,000 2005 42,000 2006 18,000 REPURCHASE AGREEMENTS The Company is contingently liable under terms of repurchase agreements covering dealer floor plan financing arrangements. These arrangements, which are customary in the industry, provide for the repurchase of homes sold to dealers in the event of default on payments by the dealer to the dealer's financing source. The contingent liability under these agreements amounted to approximately $1,900,000 and $1,497,000 at November 1, 2003 and November 2, 2002, respectively. The risk of loss is spread over numerous dealers and financing institutions and is further reduced by the resale value of any homes which may be repurchased. There were no homes repurchased in fiscal years 2003, 2002 or 2001. 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- OTHER CONTINGENT LIABILITIES Certain claims and suits arising in the ordinary course of business have been filed or are pending against the Company. In the opinion of management, the ultimate outcome of these matters will not have a material adverse effect on the Company's financial position, results of operations or cash flows. 15. QUARTERLY FINANCIAL SUMMARY (UNAUDITED) Following is a summary of the unaudited interim results of operations for each quarter in the years ended November 1, 2003 and November 2, 2002.
First Second Third Fourth Year ended November 1, 2003 Net sales $ 8,482,415 $ 8,354,762 $ 9,465,179 $ 12,926,800 Cost of goods sold 6,258,985 6,127,236 7,167,499 9,808,477 Net income 600,584 677,231 633,730 1,166,934 Earnings per share Basic 0.15 0.17 0.16 0.29 Diluted 0.15 0.17 0.16 0.29 Year ended November 2, 2002 Net sales $ 8,288,448 $ 8,945,759 $ 8,335,919 $ 12,346,337 Cost of goods sold 6,180,373 6,588,885 6,092,161 9,253,415 Net income 592,934 770,834 728,815 1,042,319 Earnings per share Basic 0.14 0.19 0.18 0.26 Diluted 0.14 0.19 0.18 0.26
The sum of quarterly earnings per share amounts does not necessarily equal earnings per share for the year. The Company historically records the increase in cash surrender value related to its life insurance policies on the Company's president during the fourth quarter. Accordingly, the Company recorded credits of approximately $91,000, $90,000 and $92,000 in fiscal years 2003, 2002 and 2001, respectively, to insurance expense in the fourth quarter of the respective years. In addition, the receipt of stock during fiscal year 2003 in connection with the demutualization of an insurance company in the amount of approximately $168,000 was recorded as other income during the fourth quarter of fiscal year 2003. 16. SUBSEQUENT EVENTS (UNAUDITED) Subsequent to November 1, 2003, the receivable from the Company's president for split-dollar life insurance premiums in the amount of approximately $597,000 (see Notes 3 and 7) was repaid to the Company. Subsequent to year-end, the Company's Board of Directors declared an annual cash dividend of $0.10 per common share, payable on January 12, 2004 to stockholders of record as of December 29, 2003. 19 EX-14 4 dkm63a.txt EXHIBIT 14 - CODE OF ETHICS Exhibit 14 NOBILITY HOMES, INC. Code of Ethics for Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer (Controller), or Persons Performing Similar Functions This Code of Ethics is adopted by Nobility Homes, Inc. (the "Company") pursuant to Section 406 of the Sarbanes-Oxley Act and the rules and regulations promulgated by the Securities and Exchange Commission thereunder. This Code provides principles which the principal executive officer, principal financial officer, principal accounting officer (and controller, if different) and other persons performing similar functions (collectively, "Covered Senior Officers") are expected to adhere to and advocate. This Code embodies rules regarding individual responsibilities as well as responsibilities to their peers, the Company and its shareholders. Covered Senior Officers should always strive to: Act with honesty and integrity, avoiding actual or apparent conflicts of interest between personal and professional relationships. Provide constituents with information that is accurate, complete, objective, relevant, timely and understandable. Comply with rules and regulations of federal, state and local governments, and other appropriate private and public regulatory agencies. Act in good faith, responsibly, with due care, competence and diligence, without misrepresenting material facts or allowing their independent judgment to be subordinated. Respect the confidentiality of information acquired in the course of their work except when authorized or otherwise legally obligated to disclose. Confidential information acquired in the course of a Covered Senior Officer's work should not be used for personal advantage. Share knowledge and maintain skills important and relevant to their constituents' needs. Proactively promote ethical behavior as a responsible partner among peers in their work environment. Achieve responsible use of and control over all assets and resources employed or entrusted to them. Report to an appropriate Senior Officer or member of the Company's Audit Committee or Board of Directors, on a timely basis, violations of this Code of Ethics. Covered Senior Officers will be asked to certify, to their best knowledge, their compliance with this Code of Ethics periodically, but not less than annually. Covered Senior Officers will be subject to disciplinary action for violating this Code of Ethics, which may include termination of employment and depending on the violation, civil damages, criminal fines and prison terms. This Code of Ethics is intended to supplement, and not substitute for, the Code of Business Conduct which the Company has adopted for its employees and directors generally, and the Covered Senior Officers will be responsible for complying with this Code of Ethics and all other Company policies and practices, including the Code of Business Conduct. EX-21 5 dkm63b.txt EXHIBIT 21 - SUBSIDIARIES OF REGISTRANT Exhibit 21 Subsidiaries of Registrant -------------------------- Prestige Home Centers, Inc. Florida Mountain Financial, Inc. Florida Majestic Homes, Inc. Florida EX-23 6 dkm63c.txt EXHIBIT 23(A) - CONSENT OF TEDDER, JAMES, WORDEN Exhibit 23(a) CONSENT OF INDEPENDENT AUDITORS' -------------------------------- We consent to the incorporation by reference in Registration Statement No. 333-44769 of Nobility Homes, Inc. on Form S-8 of our report, dated December 17, 2003, appearing in this Annual Report on Form 10-K of Nobility Homes, Inc. for the year ended November 1, 2003. /s/ Tedder, James, Worden & Associates, P.A. Orlando, Florida January 30, 2004 EX-23 7 dkm63d.txt EXHIBIT 23(B) - CONSENT OF PRICEWATERHOUSECOOPERS Exhibit 23(b) Consent of Independent Certified Public Accountants We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-44769) of Nobility Homes, Inc. of our report dated December 13, 2002 relating to the Consolidated Financial Statements, which appears in the Annual Report to Shareholders, which is incorporated by reference on Form 10-K. /s/ PricewaterhouseCoopers LLP Tampa, Florida January 30, 2004 EX-31 8 dkm63e.txt EXHIBIT 31(A) - CERTIFICATION OF CEO Exhibit 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 I, Terry E. Trexler, certify that: 1. I have reviewed this Annual Report on Form 10-K of Nobility Homes, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE: January 29, 2004 By: /s/ Terry E. Trexler ---------------------------------------- Terry E. Trexler, Chairman, President and Chief Executive Officer EX-31 9 dkm63f.txt EXHIBIT 31(B) - CERTIFICATION OF CFO Exhibit 31(b) Certification of Chief Financial 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 I, Thomas W. Trexler, certify that: 1. I have reviewed this Annual Report on Form 10-K of Nobility Homes, Inc; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE: January 29, 2004 By: /s/ Thomas W. Trexler ---------------------------------------- Thomas W. Trexler, Executive Vice President, and Chief Financial Officer EX-32 10 dkm63g.txt EXHIBIT 32(A) - WRITTEN STATEMENT OF CEO Exhibit 32(a) 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 Annual Report on Form 10-K of the Company for the quarter ended August 2, 2003 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. DATE: January 29, 2004 By: /s/ Terry E. Trexler ---------------------------------------- Terry E. Trexler, Chairman, President and Chief Executive Officer EX-32 11 dkm63h.txt EXHIBIT 32(B) - WRITTEN STATEMENT OF CFO Exhibit 32(b) 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 Executive Vice President and Chief Financial Officer of Nobility Homes, Inc. (the "Company"), hereby certify that: 1. The Annual Report on Form 10-K of the Company for the quarter ended August 2, 2003 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. DATE: January 29, 2004 By: /s/ Thomas W. Trexler ---------------------------------------- Thomas W. Trexler, Executive Vice President, and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----