SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Under Section 13 or 15(d) of
the Securities and Exchange Act of 1934
For the fiscal year ended November 2, 1996
Commission file number 0-6506
NOBILITY HOMES, INC.
(Name of small business issuer in its charter)
Florida 59-1166102
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
3741 S.W. 7th Street
Ocala, Florida 34474
(Address of principal executive offices) (Zip Code)
(352) 732-5157
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Act:
Name of each exchange
Title of each class 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.
State the aggregate market value of the voting stock held by non-
affiliates of the registrant on January 15, 1997, computed by reference to
the average bid and asked prices on that date: $17,472,855
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of January 15, 1997: 2,970,954 shares of
common stock
DOCUMENTS INCORPORATED BY REFERENCE Incorporated at
Nobility Homes, Inc. Proxy Statement for the 1997 Part III, Items 10,
Annual Meeting of Shareholders 11, 12 and 13
<PAGE>
PART I
Item 1. Description of Business
Nobility Homes, Inc. (the "Registrant or the "Company"), a
corporation organized under the laws of Florida in 1967, designs,
manufactures and sells a broad line of manufactured homes through a
network of retail sales centers throughout north and central Florida. The
Registrant also sells its manufactured homes on a wholesale basis to
manufactured home dealers and manufactured home parks.
Manufactured Homes
The Registrant's manufactured homes ("homes") are available in
single-wide widths of 14 and 16 feet ranging from 48 to 72 feet in length,
double-wide widths of 24 feet, 26 feet and 28 feet ranging from 28 feet to
76 feet in length and triple-wide widths of 36, 38 and 42 feet wide
ranging from 44 feet to 68 feet in length. Homes manufactured by the
Registrant are available in approximately 100 active models, ranging in
size from 636 to 2,153 square feet and contain from one to five bedrooms.
Trade names used for its homes include "Kingswood," "Richwood,"
"Springwood," "Tropic Isle," "Regency Manor," "Regency Manor Special," and
"Tropic Manor."
The 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 the Registrant's
homes typically range from approximately $14,000 to $60,000. Most of the
prices of the Registrant's homes are considered by it to be within the low
to medium price range of the industry.
Both of the Registrant'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. The Registrant 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, paneling, appliances, heating units,
lighting and plumbing fixtures, carpeting and drapes. The Registrant is
not dependent upon any one particular supplier for its raw materials or
component parts, nor is it required to carry significant amounts of
inventory to assure itself of a continuous allotment of goods from
suppliers.
The Registrant's two manufacturing plants operated at an average of
approximately 55% of their single shift capacity in fiscal 1997 which
represented a 5% increase from the previous fiscal year.
The Registrant generally does not manufacture its homes to be held by
it as inventory (except for model home inventory of its retail network
subsidiary, Prestige Home Centers, Inc.), but, rather, manufactures its
homes after receipt of dealer orders. Although the Registrant 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 quarter due to the holiday season.
The sales area for a manufactured home manufacturer is limited by
substantial delivery costs of the finished product to the dealer. The
homes produced by the Registrant are delivered by outside trucking
companies. The Registrant estimates that it can compete effectively
within a range of approximately 250 miles from its manufacturing plants.
During the last two fiscal years, all of the Registrant's sales were made
in Florida.
Retail Sales
Prestige Home Centers, Inc. ("Prestige"), which was formed as a
Florida corporation in July 1990, operates 15 retail lots in north and
central Florida. Its principal executive offices are located at the
Registrant's headquarters in Ocala, Florida. According to statistics
compiled by Statistical Surveys, Inc. from records on file with the State
of Florida, Prestige was the largest retail dealer of multi-section
manufactured homes in Florida in 1994, 1995 and 1996 based on number of
home sales.
Effective August 31, 1994, the Registrant acquired all the
outstanding stock of Prestige from its then shareholders, in exchange for
150,000 shares of the Registrant's Common Stock. Prior to becoming a
wholly-owned subsidiary of the Registrant, Prestige was owned 45% by the
Registrant's President, 45% by his son (a director of the Registrant and,
since December 1994, its Executive Vice President and Chief Financial
Officer), and 10% by the former President of Prestige. The acquisition
eliminated the conflicts of interest inherent in the Registrant doing
business with an entity controlled by executive officers and directors of
the Registrant, while at the same time allowing the Registrant to benefit
from the growing market for its homes through the acquisition or
development by Prestige of additional retail lots within the Registrant's
geographic market area.
The following table sets forth the location of each of Prestige's
retail outlets, and the date on which each was opened or acquired:
Location Date Opened
Ocala South July 1990
Ocala North July 1990
St. Augustine July 1990
Chiefland July 1990
Tallahassee February 1993
Tampa February 1993
Ocala West March 1993
Lake City June 1993
Auburndale August 1994
Jacksonville September 1994
Inverness May 1995
Brooksville May 1995
Tavares November 1995
North Chiefland November 1995
Perry November 1995
The Tavares, North Chiefland and Perry sales centers were acquired in
November 1995 in exchange for Common Stock with a fair market value of
$252,000.
Each of Prestige's retail lots is located within 250 miles of one of
the Registrant's two manufacturing facilities. Prestige leases its retail
lots from unaffiliated parties under leases with terms of between one and
three years with renewal options.
The primary customers of Prestige are young, first-time home buyers
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.
Financing for home purchases is provided by several independent
sources that specialize in manufactured housing lending. Additionally,
numerous local banks finance manufactured home purchases. Prestige is 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 the Registrant's market area, potential customers typically can
find a sales center within a 100 mile radius of their present home.
Prestige competes with over 50 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 also provides, through its wholly-owned subsidiary, Prestige
Insurance Services, Inc., an independent insurance agent, credit life and
property and casualty insurance to Prestige customers in connection with
their purchase and financing of manufactured homes. Prestige Insurance
Services, Inc. receives 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 less than $16,000, $24,000
and $40,000 in fiscal 1996, 1995 and 1994, respectively.
Sales to Independent Dealers and Manufactured Home Communities
The Registrant sells its homes on a wholesale basis exclusively
through 4 full-time salespersons to approximately 50 independent dealers.
The Registrant attempts continuously 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
the Registrant's dealers other than its subsidiary, Prestige, are
independent dealers that sell products produced by several manufacturers.
However, the Registrant has exclusive sales arrangements with TLT, Inc.
("TLT"), an affiliate of the Registrant's President, which operates three
manufactured home communities targeted at the retiree market. No one
dealer accounted for more than 10.0% of the Registrant's total sales in
fiscal 1996.
Dealers generally obtain inventory financing from financial
institutions (usually banks and finance companies) on a "floor plan" basis
whereby the financial institution obtains a security interest in all or
part of the dealer's manufactured home inventory. The Registrant, upon
request of the lending institution, enters into repurchase agreements with
the lending institutions which provide that, in the event of a dealer's
default, the Registrant will, at the lender's request, repurchase the home
provided that the Registrant'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. The Registrant was not required to repurchase any
homes during fiscal 1996, 1995 or 1994. For additional information, see
Note 13 of "Notes to Consolidated Financial Statements." The Registrant
does not finance retail sales of new homes for its dealers' customers.
The Registrant does not generally offer consigned inventory programs
or other credit terms to dealers and ordinarily receives payment for its
homes within 15 to 30 days of delivery. However, the Registrant offers
extended terms to park dealers who do a high volume of business with the
Registrant, including TLT as well as unrelated park dealers. In order to
stimulate sales, the Registrant sells homes to selected manufactured home
communities for display on special terms. The high visibility of the
Registrant's homes in such communities generates additional sales of the
Registrant's homes through such dealers. From time to time the Registrant
has extended floor plan to TLT in return for which the Registrant receives
virtually all of the sales rights for the manufactured homes sold by the
communities operated by it. See Note 3 of "Notes to Consolidated
Financial Statements" for additional information concerning the terms of
sales to TLT.
The Registrant offers a quarterly and yearly volume bonus award to
those dealers who purchase homes from the Registrant in excess of certain
specified dollar amounts during a specified period. As an additional
dealer incentive, the Registrant assumes certain floor plan financing
costs for a specified number of days for dealers who carry in excess of a
specified level of the Registrant's inventory. During fiscal 1996, 1995
and 1994 the Registrant reimbursed dealers other than TLT $111,539,
$35,644 and $20,955, respectively, as volume bonus awards and for floor
plan financing charges under the programs described above. Volume bonus
awards to TLT, which are granted on the same basis as to other dealers,
were $28,000 in fiscal 1996, $91,000 in fiscal 1995 and $97,000 in fiscal
1994.
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 ("HUD") has adopted national
construction and safety standards that have priority over existing state
standards. Compliance with these standards involves submission to and
approval by an engineering firm approved by HUD 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 1994, HUD regulations took effect which
require that manufactured homes built after July 13, 1994 be constructed
to more stringent standards. Florida is split between two wind zones.
Homes sold in Zone II, which includes most of north and central Florida,
must be able to withstand winds of up to 100 miles per hour, while homes
sold in Zone III, which covers primarily the coastal areas of south
Florida, must be able to withstand winds up to 110 miles per hour. Homes
built to these standards are significantly stronger than homes built prior
to the effective date. Home set-up was also affected with much stronger
tie down anchoring requirements. Most of the Registrant's homes are sold
in Zone II.
HUD also issued thermal standards for manufacturing housing which
were effective for homes manufactured beginning October 25, 1994. These
regulations mandate a much higher insulation throughout the home including
the floor, walls and roof and an improved ventilation system for the whole
house, including kitchen and baths.
The Registrant 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 homes manufactured by the Registrant 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.
Homes manufactured by the Registrant are subject to the requirements
of the Magnuson-Moss Warranty Act and Federal Trade Commission rulings
which regulate warranties on consumer products. The Registrant provides a
limited warranty of one year on the structural components of the homes it
manufactures.
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.
The Registrant competes directly with other manufacturers, some of which
are considerably larger than it and possess greater financial resources.
Based on number of units sold, the Registrant ranks 6th in the state of
Florida out of the top 45 manufacturers selling manufactured homes in the
state; however, the Registrant estimates that of those 45 manufacturers
approximately 15 manufacture homes of the same type as the Registrant and
compete in the same market area. The Registrant believes that it is
generally competitive with most of those manufacturers in terms of price,
service, warranty and product performance.
Employees
As of January 15, 1997, the Registrant had 240 full-time employees,
including 70 employed by Prestige. Approximately 131 employees are
factory personnel compared to approximately 117 in such positions a year
ago and 93 are in management, administrative, supervisory, sales and
clerical positions (including 54 management and sales personnel employed
by Prestige) compared to approximately 94 a year ago. In addition, the
Registrant employs part-time employees when necessary.
The Registrant makes a contribution toward employees' group health
and life insurance. The Registrant, which is not subject to any
collective bargaining agreements, has not experienced any work stoppage or
labor disputes during the fiscal year and considers its relationship with
employees to be generally satisfactory.
Item 2. Properties
As of November 2, 1996, two manufacturing plants were owned and
operated by the Registrant as follows:
Depreciated Cost of
Approximate Plant and Property
Location Size at November 2, 1996
Belleview, Florida 33,500 sq. ft. $ 91,986
Ocala, Florida(1) 72,000 sq. ft. 558,383
_________________________
(1) This 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 the Registrant's corporate offices.
The Company's Belleview plant is metal and concrete construction and
the Ocala plant is of metal construction. Both properties are in good
condition and require little maintenance.
Item 3. Pending Legal Proceedings
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, any related liabilities that might arise would be covered
under terms of the Company's liability insurance policies or would not be
material to the financial statements taken as a whole.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The Registrant'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 1996 and
1995.
Fiscal Year End (1)
November 2, 1996 November 4, 1995
Quarter High Low High Low
1st $9.33 $8.67 $6.67 $5.67
2nd 11.33 11.00 5.50 4.83
3rd 12.92 12.67 7.83 6.83
4th 15.25 14.75 11.00 9.00
_______________________
(1) On January 19, 1996 and August 16, 1996, three-for-two stock splits
in the form of stock dividends were paid to shareholders of record on
December 22, 1995 and July 26, 1996, respectively. Amounts in the table
have been restated to give effect to these two stock dividends.
At January 16, 1997, the approximate number of record holders of
Common Stock was 254 (not including individual participants in security
position listings).
The payment of cash dividends will be within the discretion of the
Registrant's Board of Directors and will depend, among other factors, on
earnings, capital requirements and the operating and financial condition
of the Registrant. During fiscal 1996 and 1995, no cash dividends were
paid.
Item 6. Selected Financial Data
The following table sets forth Selected Financial Data for each of
the Registrant's last five fiscal years. This information should be read
in conjunction with the financial statements of the Company (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.
<TABLE>
<CAPTION>
Years Ended(1)
November 2, November 4, October 29, October 30, October 31,
1996 1995 1994 1993 1992
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
Total net sales $36,455 $30,806 $23,082 $19,438 $9,745
Income from operations 3,839 2,710 1,585 1,846 103
Other income 47 1,340 374 177 103
Net income 2,395 2,957 1,769 1,867 206
Net income per share(2) .81 1.03 .61 .64 .08
Total Assets 14,871 12,896 11,355 11,438 5,041
Long term obligations -0- 659 764 936 218
Stockholders equity 12,256 9,479 6,481 4,820 3,069
_____________________________
(1) The Company's fiscal year ends on the first Saturday on or after
October 31. Prior to 1995, the Company's fiscal year ended on the
Saturday closest to October 31. The years ended November 2, 1996,
November 4, 1995, and October 31, 1992 consisted of a fifty-three
week period and the years ended October 29, 1994 and October 30, 1993
consisted of a fifty-two week period.
(2) On January 19, 1996 and August 16, 1996, three-for-two stock splits
in the form of stock dividends were paid to shareholders of record on
December 22, 1995 and July 26, 1996, respectively. Amounts in the
table have been restated to give effect to these two stock dividends.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Registrant's primary focus is young, first time home buyers who
already live and work in the area. These buyers generally purchase their
manufactured homes from retail sales centers to locate on property they
own. The Registrant has aggressively pursued this market through its
Prestige retail sales centers, which have become the principal focus of
its business strategy. While the Registrant actively seeks to make
wholesale sales to independent retail dealers, the Registrant's presence
as a competitor limits potential sales in the same geographic areas
serviced by its Prestige sales centers.
The Registrant continues to make sales to the retirement community
market, which is made up of retirees from the north who move to Florida to
enjoy its milder winters and who typically purchase homes to be located on
sites leased from park communities that offer a variety of amenities.
While a portion of the Registrant's sales in this market are made to
communities owned by the Registrant's affiliate, TLT, the importance to
the Registrant of the retirement market continues to diminish, both as a
focus of its efforts and in dollars and as percentage of total sales.
The Company sold 1,087 homes in fiscal 1996, of which 237 homes were
sold to independent dealers, representing sales of $5,203,547, and 28
homes were sold to TLT communities, representing sales of $708,196. In
fiscal 1995, the Company sold 1,030 homes, of which 181 homes were sold to
independent dealers, representing sales of $3,874,817, and 55 homes were
sold to TLT communities, representing sales of $1,295,209. In fiscal
1994, the Company sold 838 homes, of which 230 homes were sold to
independent dealers, representing sales of $4,257,766; and 65 homes were
sold to TLT communities, representing sales of $1,395,207. The balance of
the Registrant's sales in fiscal 1996, 1995 and 1994 were made on a retail
basis through Prestige's retail centers.
The Registrant has a product line of approximately 100 active models.
Market demand can fluctuate on a fairly short-term basis; however, the
manufacturing process is such that the Registrant can alter its product
mix relatively quickly in response to changes in the market. During
fiscal 1996, the Registrant's product mix was positively affected by
larger, more expensive double-wide and triple-wide homes and better
acceptance of the Registrant's single-wide homes both resulting from
greater consumer confidence and the availability of varied types of
financing at competitive rates. Many family buyers today purchase three-
or four-bedroom manufactured homes, compared with the two-bedroom home
that typically appeals to the retirement community market.
In an effort to make manufactured homes more competitive with
conventional housing, the outside financing sources that finance home
purchases by Prestige's customers continue to develop creative and
attractive financing packages including 30-year mortgages, an interest
rate reduction program, combination land/manufactured home loans, and a 5%
down payment program for qualified buyers.
Results of Operations
The Company continued to increase revenues during the fiscal year
ended November 2, 1996. Total net sales in 1996 were $36,455,195 compared
to $30,805,835 in 1995 and $23,082,391 in fiscal 1994. This increase in
net sales represents an 18.3% increase in 1996 and 33.4% increase in 1995.
The increase in sales in fiscal 1996 over fiscal 1995 was primarily due to
the Company having fifteen retail sales centers in full operation during
the majority of fiscal 1996 following the acquisition of three additional
existing retail sales centers in November 1995. The increase in fiscal
1995 sales over fiscal 1994 sales was primarily due to the Company having
ten retail sales centers in full operation throughout fiscal 1995 and the
acquisition of two existing retail sales centers in May 1995. In fiscal
1994, the Company had eight retail sales centers in full operation. Two
additional retail sales centers were opened in August and September 1994,
respectively, but did not produce any sales until the first quarter of
fiscal 1995. A portion of the fiscal 1995 increase in sales also was due
to higher costs passed on to customers resulting from new HUD regulations
(see "Description of Business-Regulation"). Both of the years ended
November 2, 1996 and November 4, 1995 consisted of a fifty-three (53) week
period while the year ended October 29, 1994 consisted of a fifty-two (52)
week period.
Industry-wide production of manufactured homes continued to improve
for the first eleven months of 1996, up 9.1% over 1995, which had shown an
11.4% improvement over 1994, extending the trend begun in 1992.
Production of manufactured homes in Florida increased approximately 11% in
1996 following a decline of approximately 8.6% for the first eleven months
of calendar 1995. The decline in 1995 followed an increased demand in
1994 and 1993 for homes in South Florida during the rebuilding following
Hurricane Andrew. Nobility's sales increased by 18% in fiscal 1996, 33%
in fiscal 1995 and 18% in fiscal 1994.
Gross profit as a percentage of net sales was 25.5% in fiscal 1996
compared to 23.4% in fiscal 1995. The increase in gross profit in fiscal
1996 was primarily due to increasing home prices to offset lumber price
increases and continuing improvements in operating efficiency at the
Registrants' manufacturing plants.
In fiscal 1995, gross profit as a percent of net sales was 23.4%
compared to 22.0% in fiscal 1994. The increase in gross profit in fiscal
1995 was primarily due to an 8.4% increase in the average new home sales
prices and better operating efficiencies at both the Prestige retail
centers and at the Registrant's manufacturing plants.
Selling, general and administrative expenses as a percent of net
sales was 15.0% in fiscal 1996 as compared to 14.1% in 1995. The increase
in selling, general and administrative expenses was primarily due to
start-up expenses associated with the addition of the three retail sales
centers in November 1995, coupled with increased newspaper, radio and
television advertising expense. In fiscal year 1995, selling, general and
administrative expenses as a percent of net sales was 14.1% reflecting
little change from 14.3% in fiscal 1994.
Other income for fiscal 1996 was $46,866, down from $1,339,743 for
the 1995 fiscal year which consisted of: (1) $1,000,000 in non-recurring
income from the key-man insurance carried on the former president of
Prestige Homes, Bertus C. Parker, who died in May, 1995 after a lengthy
illness; and (2) $348,884 gain from an installment sale. During fiscal
1994, the Company recognized a $231,327 gain from the sale of its idle
North Carolina manufacturing plant and a $162,530 gain from an installment
sale and interest of approximately $34,192 on the installment sale.
Effective October 31, 1993 the Company adopted Statement of Financial
Accounting Standards No. 109 Accounting for Income Taxes ("FAS 109"). The
adoption of FAS 109 changed the Company's method of accounting for income
taxes from a deferred method to an asset and liability approach. During
the first quarter of fiscal 1994, FAS 109 had the effect of increasing net
income by $664,000.
As a result of the factors discussed above, earnings for fiscal year
1996 are $2,395,130 or $.81 per share compared to $2,957,438 or $1.03 per
share for fiscal 1995. Earnings for fiscal year 1994 were $1,769,176 or
$.61 per share. Earnings per share information has been restated to give
effect to two three-for-two stock splits in the form of dividends payable
on January 19, 1996 and August 16, 1996, respectively.
Liquidity and Capital Resources
Cash and cash equivalents were $2,049,184 at November 2, 1996
compared to $932,432 at November 4, 1995. Working capital increased to
$8,762,581 in fiscal 1996 compared to $6,956,429 in 1995. In fiscal year
1996, the Company carried all the inventory for the retail sales centers
and did not incur third party floor plan financing expenses. Inventories
increased to $7,820,908 in 1996 from $6,786,159 at fiscal year end 1995.
The increase in inventories is primarily due to the acquisition of the
three retail centers in 1995. During fiscal 1995, the Company maintained
an average of $1.5 million on third party floor plans, which was paid off
during the fourth quarter of 1995, compared with an average of $2.0
million in fiscal 1994.
During fiscal 1996 and 1995, the Company maintained a revolving credit
agreement with a major bank providing for borrowings up to $2.5 million.
In July 1996, the Company entered into a second revolving line of credit
agreement with a major bank which provides for borrowings up to
$1,500,000. These two agreements provide the Company with an additional
$4.0 million of working capital for use in connection with its overall
operations. At November 2, 1996, there were no amounts outstanding under
these agreements.
In July 1996, the Company paid in full $652,000 in loans borrowed
against the cash surrender value of the Company owned life insurance
policies. The policies insure the President of the Company and name the
Company as beneficiary.
On November 22, 1995, the Company acquired three retail sales centers
in Florida in an asset acquisition by issuing 18,000 shares of common
stock with a fair market value of $252,000.
Consistent with normal practice, the Company's operations are not
expected to require significant capital expenditures during fiscal 1996.
Working capital requirements for inventory for new retail sales centers
are met through a combination of internal sources and the revolving credit
lines discussed above.
Item 8. Consolidated Financial Statements and Supplementary Data
Financial statements incorporated herein from the Registrant's Annual
Report to Shareholders are attached as Exhibit 13 and are listed at Part
IV, Item 13(a), "Consolidated Financial Statements and Schedules."
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning the directors of the Registrant is
incorporated by reference pursuant to Instruction G of Form 10-K from the
Registrant's definitive proxy statement for the 1997 annual meeting of
shareholders to be filed with the Commission pursuant to Regulation 14A on
or before March 2, 1997.
The following table provides the names, ages and business experience
for the past five years for each of the Executive Officers of the
Registrant. Executive officers are each elected for one year terms.
Executive Officers
Terry E. Trexler (57) Chairman of the Board and President of
Registrant; Mr. Trexler is also President of TLT,
and, since April 1996, a director of Citizens
National Bank and its subsidiary, Citi-
Bancshares, Inc.; Mr. Trexler 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 (33) Executive Vice President and Chief Financial
Officer of the Registrant since December 1994 and
a director of the Registrant 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; prior to
September 1991, Mr. Trexler was Vice President of
NationsBank (formerly NCNB National Bank) in
Naples, Florida.
Edward C. Sims (50) Vice President of Engineering of the Registrant.
Jean Etheredge (51) Secretary of the Registrant.
Lynn J. Cramer, Jr. (51) Treasurer of the Registrant.
Thomas W. Trexler, Executive Vice President, Chief Financial Officer
and a director of the Registrant, is the son of Terry E. Trexler, the
Registrant's President and Chairman of the Board. There are no other
family relationships between any directors or executive officers of the
Registrant.
Item 11. Executive Compensation
Information concerning executive compensation is incorporated by
reference pursuant to Instruction G of Form 10-K from the Registrant's
definitive proxy statement for the 1997 annual meeting of shareholders to
be filed with the Commission pursuant to Regulation 14A on or before
March 2, 1997.
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 the Registrant's definitive proxy statement for the
1997 annual meeting of shareholders to be filed with the Commission
pursuant to Regulation 14A on or before March 2, 1997.
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
the Registrant's definitive proxy statement for the 1997 annual meeting of
shareholders to be filed with the Commission pursuant to Regulation 14A on
or before March 2, 1997.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Consolidated Financial Statements and Schedules:
Report of Price Waterhouse LLP
Consolidated Balance Sheets at November 2, 1996 and November 4,
1995
Consolidated Statements of Income for the Years Ended November
2, 1996, November 4, 1995 and October 29, 1994
Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended November 2, 1996, November 4, 1995 and
October 29, 1994
Consolidated Statements of Cash Flows for the Years Ended
November 2, 1996, November 4, 1995 and October 29, 1994
Notes to Consolidated Financial Statements
(b) Reports on Form 8-K:
None
(c) Exhibits:
3. (a) The Registrant's Articles of Incorporation, as
amended, were attached as an Exhibit to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended November 1, 1981, and are incorporated
herein by reference.
(b) Bylaws, as amended March 28, 1994, were attached as an
Exhibit to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended October 29, 1994 and
are incorporated herein by reference.
10. (a) The following documents relating to floor plan
financing for Prestige Home Centers, Inc.:
(2) Inventory Financing Agreement between Prestige
Home Centers, Inc. and Ford Motor Credit Company
was attached as an Exhibit to the Registrant's
Annual Report on Form 10-KSB for the fiscal year
ended October 29, 1994 and is incorporated herein
by reference.
(3) Inventory Security Agreement between Prestige
Home Centers, Inc. and John Deere Credit, Inc.
was attached as an Exhibit to the Registrant's
Annual Report on Form 10-KSB for the fiscal year
ended October 29, 1994 and is incorporated herein
by reference.
(b) Revolving Credit Agreement dated June 7, 1996 between
the Company and SunTrust Bank, North Central Florida.
(c) Loan Agreement dated July 17, 1996 between the Company
and AmSouth Bank of Florida.
13. Consolidated Financial Statements and Schedules from 1996
Annual Report to Shareholders.
21. Subsidiaries of Registrant.
27. Financial Data Schedule.
<PAGE>
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 20, 1997 By: /s/ Terry E. Trexler
Terry E. Trexler, Chairman, President
and Chief Executive Officer
DATE: January 20, 1997 By: /s/ Thomas W. Trexler
Thomas W. Trexler, Executive
Vice President
Chief Financial Officer
DATE: January 20, 1997 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 20, 1997 /s/ Terry E. Trexler
Terry E. Trexler, Director
DATE: January 20, 1997 /s/ Richard C. Barberie
Richard C. Barberie, Director
DATE: January 20, 1997 /s/ Robert Holliday
Robert Holliday, Director
DATE: January 20, 1997 /s/ Robert P. Saltsman
Robert P. Saltsman, Director
Date: January 20, 1997 /s/ Thomas W. Trexler
Thomas W. Trexler, Director
<PAGE>
EXHIBIT INDEX
3. (a) The Registrant's Articles of Incorporation, as amended,
were attached as an Exhibit to the Registrant's Annual
Report on Form 10-K for the fiscal year ended November 1,
1981, and are incorporated herein by reference.
(b) Bylaws, as amended March 28, 1994, were attached as an
Exhibit to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended October 29, 1994 and are
incorporated herein by reference.
10. (a) The following documents relating to floor plan financing
for Prestige Home Centers, Inc.:
(2) Inventory Financing Agreement between Prestige
Home Centers, Inc. and Ford Motor Credit Company
was attached as an Exhibit to the Registrant's
Annual Report on Form 10-KSB for the fiscal year
ended October 29, 1994 and is incorporated herein
by reference.
(3) Inventory Security Agreement between Prestige
Home Centers, Inc. and John Deere Credit, Inc.
was attached as an Exhibit to the Registrant's
Annual Report on Form 10-KSB for the fiscal year
ended October 29, 1994 and is incorporated herein
by reference.
(b) Revolving Credit Agreement dated June 7, 1996 between the
Company and SunTrust Bank, North Central Florida.
(c) Loan Agreement dated July 17, 1996 between the Company and
AmSouth Bank of Florida.
13. Consolidated Financial Statements and Schedules from 1996 Annual
Report to Shareholders.
21. Subsidiaries of Registrant.
27. Financial Data Schedule.
REVOLVING CREDIT AGREEMENT
June 7, 1996
Mr. Terry E. Trexler, President
Nobility Homes, Inc.
3741 S. W. 7th ST
Ocala, FL 34478
Dear Mr. Trexler:
The following agreement is provided in an effort to clarify the terms,
conditions and covenants relative to the $2,500,000 Line of Credit
("Line"), which was provided your organization by SunTrust Bank, North
Central Florida. This agreement shall supersede the previous agreement
dated November 28, 1995. The Line is offered subject to the following
terms, conditions and covenants.
A. TERMS OF LINE
1. Borrower: Advances under the line shall be made to Nobility Homes,
Inc. ("Borrower"), which shall be responsible for the repayment of
the advances.
2. Amount of Line: The maximum amount of the Line shall be Two Million,
Five Hundred Thousand and No/100 Dollars ($2,500,000.00).
3. Purpose: Advances under the Line are to be used for general short-
term working capital requirements which occur in the normal course of
Borrower's business.
4. Term of Line: The Line shall be represented and evidenced by a
promissory note or notes, payable on demand of the Bank. The Bank's
obligation to advance under this Line of Credit Commitment shall
expire on demand and shall be subject to the Borrower's continued
banking relationship with the Bank, as well as the continued
satisfactory financial condition of the Borrower, in the opinion of
the Bank.
5. Interest Rate: Advances under the Line shall bear and accrue
interest at a rate per annum which is defined as that rate of
interest announced from time to time by the Bank as the London
interbank offering rate (LIBOR) as calculated on a daily rate basis
plus 250 basis points. Interest shall be due and payable monthly.
Rate basis is floating, with adjustments made the day of change.
5.1 Calculation of Interest: All interest under the Note or hereunder
shall be calculated on the basis of a 360-day year for the actual
number of days elapsed in an interest period (actual/360 method),
unless the Bank shall otherwise elect.
6. Advances: The sums contemplated to be advanced may be repaid and
re-advanced pursuant to the terms hereof, so long as this agreement
remains in effect. The advances may be repaid in whole or in part at
any time without prepayment premium, penalty, or fee whatsoever.
7. Line of Credit Paydown: During the term of this commitment, the
outstandings under the Line shall be paid down to a balance not to
exceed One and No/100 Dollars ($1.00) for thirty (30) consecutive
days.
8. Loan Security: The advances shall be extended on an unsecured
basis; however, the Borrower shall not, without the prior written
consent of the Bank, permit or suffer to exist any lien, charge,
encumbrance, or security interest in or upon the Borrower's business
assets, with the exception of floor plan lines of credit occurring in
the normal course of business, in as much as they do not adversely
impact the financial covenants detailed in this agreement
B. REQUIREMENTS AND CONDITIONS OF LINE
1. Financial Information: Borrower shall maintain books and records in
accordance with generally accepted accounting principles and shall
furnish to the Bank the following periodic financial information:
(a) Quarterly Reports. Within 45 days after the end of each
calendar quarter, an income statement and a balance sheet prepared in
accordance with generally accepted accounting principles, certified
by the chief financial officer or president of Borrower as being true
and accurate;
(b) Annual Reports. Within 90 days after the end of each fiscal
year, an income statement and a reconciliation of surplus statement
of the Borrower for such year, and a balance sheet as of the end of
such year, prepared in accordance with generally accepted auditing
standards certified by independent certified public accountants of
recognized standing selected by the Borrower and satisfactory to the
Bank; and
(c) No Default Certificates. Together with each report required by
Subsection (a) and (b), shall submit a certificate of its president
or chief financial officer that no Default or Event of Default then
exists or if a Default or Event of Default exists, the nature and
duration thereof and the Borrower's intention with respect thereto.
In addition, in the event of a default, the Borrower's independent
auditors (if applicable) shall include, within its audit report, a
statement that, in the course of such audit, it discovered any
circumstances which it believes constitutes a Default or Event of
Default and if it discovered any such circumstances, the nature and
duration thereof.
If the Borrower has Subsidiaries, the financial statements required
above shall be consolidated and, if required by the Bank,
consolidating form for the Borrower and all Subsidiaries required by
generally accepted accounting principles to be consolidated for
financial reporting purposes, and/or,
(d) Other Information. In addition to the financial statements
required herein, the bank reserves the right to require other or
additional financial or other information concerning the Borrower
and/or its Subsidiaries.
2. Conditions Precedent to Borrowing. Prior to any Advance of the
proceeds of any Loan, the following conditions shall have been
satisfied, in the sole opinion of the Bank and its counsel:
2.1 Conditions Precedent to Each Advance. The following conditions
shall have been satisfied prior to any advance, in the sole opinion
of the Bank and its counsel:
(a) Advance Request. Automatic advances under the line of credit
to cover cash shortfalls in the Borrower's depository accounts
with Bank as provided under the automatic sweep service
currently in place with Bank are permitted. In the event of the
need for a manual advance under the line, the Borrower shall
deliver to the Bank a written request for Advance signed by an
authorized officer of the firm as stated in the corporate
resolutions.
(b) No Default. No default shall have occurred and be continuing or
will occur upon the making of the Advance in question.
(c) No Adverse Change. There shall have been no material adverse
change in the condition, financial or otherwise, of the Borrower
or any Subsidiary from such condition as it existed on the date
of the most recent financial statements of Borrower delivered
prior to date hereof.
C. COVENANTS OF THE BORROWER
The Borrower covenants and agrees that from the date hereof and until
payment in full of the Indebtedness and the formal termination of this
Agreement, unless the Bank shall otherwise consent in writing, the
Borrower and each Subsidiary:
1. Use of Loan Proceeds. Shall use the proceeds of the Loan only for
the commercial purposes permitted herein or otherwise permitted by
the Bank and furnish the bank all evidence that it may reasonably
require with respect to such use.
2. Insurance. Shall maintain such liability insurance, workers'
compensation insurance, and casualty insurance as may be required by
law, customary and usual for prudent businesses in its industry or as
may be reasonably required by the Bank.
3. Payment of Taxes, Etc. Shall pay before delinquent all of its debts
and taxes except that the Bank shall not unreasonably withhold its
consent to nonpayment of taxes being actively contested in accordance
with law (provided that the Bank may require bonding or other
assurances).
4. Compliance; Hazardous Materials. Shall strictly comply with all
laws, regulations, ordinances and other legal requirements,
specifically including, without limitation, ERISA, all securities
laws and all laws relating to hazardous materials and the
environment. Unless approved in writing by the Bank, neither the
Borrower nor any Subsidiary shall engage in the storage, manufacture,
disposition, processing, handling, use or transportation of any
hazardous or toxic materials, whether or not in compliance with
applicable laws and regulations.
5. Change in Business. Shall not enter into any business which is
substantially different from the business or businesses in which it
is presently engaged.
6. Sale of Business. Shall maintain its corporate existence, good
standing and necessary qualifications to do business and shall not
sell, lease, assign or otherwise dispose of any substantial portion
of its assets (other than sales of obsolete or worn-out equipment and
sales of Inventory in the ordinary course of business). Change in
the principal ownership of the Firm will cause the Line to become
immediately due and payable.
7. Financial Covenants. At all times, the Borrower shall be in
compliance with the following financial covenants on a consolidated
basis:
(a) The tangible net worth of the Borrower shall not be less than
$5,500,000. at the end of any fiscal quarter;
For purposes of this Agreement, the term "tangible net worth" shall
be the net worth of an Entity according to generally accepted
accounting principles less any write-up of assets subsequent to
October 31, 1993; deferred assets other than prepaid insurance and
prepaid taxes; patents, copyrights, trademarks, trade names, non-
compete agreements, franchises and other intangibles; goodwill or
other amounts representing the excess of the purchase price of assets
or stock over the value assigned thereto on the books of such Entity;
unamortized debt discount and expense; and any other amounts
categorized as intangibles under generally accepted accounting
principles.
(b) The ratio of current assets of the Borrower to current
liabilities shall not be less than 1.5:1 as at the end of the fiscal
quarter;
(c) The current assets of the Borrower shall exceed its current
liabilities by at least $2,500,000 as at the end of each fiscal
quarter;
(d) All financial terms used herein shall have the meanings assigned
to them under generally accepted accounting principles unless another
meaning shall be specified.
8. Events of Default. Each of the following shall constitute an Event
of Default:
(a) Any representation or warranty made by the Borrower or any
other party to any Loan Document (other than the Bank) herein or
therein or in any certificate or report furnished in connection
herewith or therewith shall prove to have been untrue or incorrect in
any material respect when made; or
(b) There shall occur any default by the Borrower in the payment,
when due, of any principal of or interest on the Note, any amounts
due hereunder or any other Loan Document or any other Indebtedness
(not cured within the grace period provided in such Note or in the
document or instrument evidencing such Indebtedness);
(c) Any other obligation now or hereafter owed by the Borrower or
any Subsidiary to the Bank shall be in default and not cured within
any period of grace provided therein or any such Entity shall be in
default under any obligation in excess of $75,000. owed to any other
obligee, which default entitles the obligee to accelerate any such
obligations or exercise other remedies with respect thereto;
(d) There shall occur any default by the Borrower or any other
party to any Loan Document (other than the Bank) in the performance
of any agreement, covenant or obligation contained in this Agreement
or such Loan Document not provided for elsewhere in this Section 12
and such default is not cured within any grace period provided in
this Agreement or such other loan Document; or
(e) The Borrower or any Subsidiary shall (I) voluntarily liquidate
or terminate operations or apply for or consent to the appointment
of, or the taking of possession by, a receiver, custodian, trustee or
liquidator or such Person or of all or of a substantial part of its
assets, (ii) admit in writing its inability, or be generally unable,
to pay its debts as the debts become due, (iii) make a general
assignment for the benefit of its creditors, (iv) commence a
voluntary case under the federal Bankruptcy Code ( as now or
hereafter in effect), (v) file a petition seeking to take advantage
of any other law relating to bankruptcy, insolvency,
(f) Without its application, approval or consent, a proceeding shall
be commenced, in any court of competent jurisdiction, seeking in
respect of such Person any remedy under the federal Bankruptcy Code,
the liquidation, reorganization, dissolution, winding-up, or
composition or readjustment of debt, the appointment of a trustee,
receiver, liquidator or the like of such Person, or of all or any
substantial part of the assets of such Person, or other like relief
under any law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts.
9. Remedies. If any Default shall occur, the Bank may, without notice
to the Borrower, at its option, withhold further Advances to the
Borrower of proceeds of the Loans. Should any Event of Default occur
and not be cured within thirty (30) days following delivery of
written notice complete upon hand or overnight delivery or upon
facsimile delivery or mailing by certified mail, return receipt
requested, the Bank may declare any or all Indebtedness to be
immediately due and payable (if not earlier demanded), bring suit
against the Borrower to collect the Indebtedness, exercise any remedy
available to the Bank hereunder and take any action or exercise any
remedy provided herein or in any other Loan Document or under
applicable law. No remedy shall be exclusive of other remedies or
impair the right of the Bank to exercise any other remedies.
10. Severability. No failure on the part of the Bank to exercise, and
no delay in exercising, any right hereunder or under any other Loan
Document shall operate as a waiver thereof, nor shall any single or
partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and are in addition to any other
remedies provided by law, any Loan Document or otherwise.
11 Survival of Representations. All representations and warranties
made herein shall survive the making of the loans hereunder and the
delivery of the Notes, and shall continue in full force and effect
so long as any Indebtedness is outstanding, there exists any
commitment by the Bank to the Borrower, and until this Agreement is
formally terminated in writing.
10.3 Notices. Any notice or other communication hereunder to any party
hereto shall be by hand delivery, overnight delivery, facsimile,
telegram, telex or registered certified mail and unless otherwise
provided herein shall be deemed to have been given or made when
delivered, telegraphed, telexed, faxed or deposited in the mails,
postage prepaid, addressed to the party at its address specified
below (or at any other address that the party may hereafter specify
to the other parties in writing):
The Bank: SunTrust Bank, North Central Florida
Corporate Lending Division
203 E. Silver Springs Blvd.
Ocala, FL 34470
The Borrower: Nobility Homes, Inc.
3741 S. W. 7th Street
Ocala, FL 34474
10.4 Valid Existence and Power. The Borrower and each subsidiary is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Florida and is duly qualified or
licensed to transact business in all places where the failure to be
so qualified would have a material adverse effect on it. The
Borrower and each other Entity which is a party to any Loan Document
(other than the Bank) has the power to make and perform the Loan
Documents executed by it and all such instruments will constitute the
legal, valid and binding obligations of such Entity, enforceable in
accordance with their respective terms, subject only to bankruptcy
and similar laws affecting creditors' rights generally.
11. Commitment Expiration: This commitment shall expire unless it has
been accepted in writing and the acceptance received by the
undersigned on or before June 18, 1996.
Please indicate your acceptance of this commitment and the terms and
conditions contained herein by executing your acceptance immediately below
and returning one executed copy of the Commitment Letter and Agreement to
the Bank.
We would like to express our appreciation for the opportunity you have
given us to be of service, and look forward to an ongoing mutually
satisfactory relationship.
Sincerely,
Loren M. Thrasher
Assistant Vice President
Corporate Lending Division
BORROWER'S ACCEPTANCE OF COMMITMENT AND AGREEMENT
The above Revolving Credit Agreement is hereby accepted on the terms and
conditions outlined therein.
Nobility Homes, Inc.
By: _________________________________
Terry E. Trexler, President
Date:
Exhibit 10(c)
AMSOUTH BANK OF FLORIDA
3300 S.W. 34th Avenue, Oscala, Florida
LOAN AGREEMENT
Nobility Homes, Inc.
Name of Borrower
Post Office Box 1659 Oscala Florida
Street City State
(herein called "Borrower") and AmSouth Bank of Florida (herein called
"Bank") agree as herein follows:
1. BORROWING. Bank will lend to Borrower and borrower will borrower
from Bank the net amount of $1,500,000.00. subject to all terms and
conditions of this Agreement. Such loan will be evidenced by a
promissory note ("note") in a form satisfactory to the Bank at the
rate of interest of LIBOR plus 225 basis points, payable as provided
in the note. The Borrower will use the proceeds of such loan for the
purpose of providing short term working capital.
2. CONDITIONS. Before the Bank lends to the Borrower, the Borrower
will, in a manner satisfactory to the Bank.
a) Furnish the following collateral: negative pledge on all
company assets with the exception of those assets under the
floor plan lines of credit.
3. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants
and, so long as any indebtedness remains unpaid, shall be deemed
continuously to represent and warrant that:
a) Borrower has the full power and authority to enter into this
Agreement, to make the borrowing hereunder, to execute and
deliver the Note and to incur the obligations provided for
herein.
b) The information supplied and the statements made by Borrower in
any financial or credit statement or application for credit
prior to this Agreement were true and correct as of the date
they were made.
c) There is no provision of any existing mortgage, indenture,
contract or agreement binding on the Borrower or affecting its
property, which would conflict with or in any way prevent the
execution, delivery, or carrying out of the terms of this
Agreement and the Note. If any further action or permission is
necessary to enable the Borrower to perform this Agreement, or
to comply with its covenants and obligations hereunder, Borrower
represents and agrees to take such action and to obtain such
permission.
d) If a corporation, Borrower is duly organized and existing, and
in good standing, under the Laws of the State of Florida and has
the corporate power to own its property and to carry on its
business as now being conducted.
4. TAXES. The Borrower has filed all Federal, State and other tax and
similar returns and has paid or provided for the payment of all taxes
and assessments due thereunder through December 31, 1995, including
all withholding, FICA and franchise taxes.
5. AFFIRMATIVE COVENANTS. So long as Borrower's indebtedness to the
Bank shall remain open, Borrower will:
a) keep proper records of account in a manner satisfactory to Bank;
b) permit, at Borrower's expense, inspections, and audits by Bank
or by Bank's agent of all books, records and papers in the
custody and control of the Borrower or others, relating to the
Borrower's financial or business condition, including the making
of copies thereof and abstracts therefrom, and inspection and
appraisal of any of borrower's assets;
c) deliver to the Bank financial information in such form and
detail and at such times as are satisfactory to the Bank,
including, without limitation, (i) Borrower's annual financial
statements within 90 days after the end of each of Borrower's
fiscal years, to be accompanied, if marked ________, by the
individual financial statement of each endorser, guarantor,
partner or other party liable for payment of any of the
Borrower's indebtedness to the Bank, and (ii) if marked here x
, Borrower's quarterly financial statements within 60 days after
the end of such period; Annual financial statements will be
audited with an unqualified opinion.
d) maintain a current ratio not less than 1.5 - 1.00. Current
ration to be determined by generally accepted accounting
principles.
e) maintain tangible net worth of not less than $1,500,000.
Tangible net worth to be determined by generally accepted
accounting principles.
f) promptly pay all taxes, assessments and other governmental
charged due from Borrower, provided however, that nothing herein
contained shall be interpreted to require the payment of any
such tax so long as its validity is being contested in good
faith;
g) (i) keep all properties so insured at all times with responsible
insurance carriers against fire and other hazards in such manner
and to such extent that like properties are usually insured by
other operating businesses, plants and properties of similar
character in the same general locality, and (ii) keep adequately
insured at all times with responsible insurance carriers against
liability on account of damage to persons or properties, and
other applicable workmen's compensation laws.
h) promptly inform the Bank of the commencement of any action,
suit, proceeding or investigation against the Borrower, or the
making of any counterclaim against the Borrower in any action,
suit or proceeding, and of all liens against any of the
Borrower's property; and
i) maintain corporate management of partnership or proprietary
interest satisfactory to the Bank.
6. NEGATIVE COVENANTS. So long as any of borrower's indebtedness to
Bank shall remain unpaid, Borrower will not, without the Bank's prior
written consent:
a) with the exception of floor plan lines of credit create, incur,
assume or suffer to exist any security interest, mortgage,
pledge, lien or other encumbrance on any of the Borrower's
property or assets, whether now owned or hereafter acquired,
except in the Bank's favor and except liens of taxes not in
default or being contested in good faith; provided, however,
that if in any proceeding before the United States Tax Court,
the Borrower is adjudged liable for unpaid taxes and wish to
appeal from such adjudication, the Borrower shall promptly take
appropriate steps to stay the assessment of any lien of such
taxes;
b) sell, convey, lease or transfer any of Borrower's assets other
than in the ordinary course of business, or merge or consolidate
with or into any other company or corporation;
c) become a guarantor, surety or otherwise liable for the debts or
other obligations of any other person, firm or corporation
except as an endorser of instruments for the payment of money
deposited to a bank account for collection in the ordinary
course of business;
d) change the form in which the Borrower conducts its business or
the location of such business or the nature of the business as
conducted by the Borrower on the date of this Agreement or fail
to maintain the Borrower's business operation as a going
concern.
7. EVENTS OF DEFAULT. All the Borrower's obligations to the Bank may be
immediately terminated and the entire unpaid balance of all of the
Borrower's indebtedness to the Bank declared to be immediaTely due
and payable at the Bank's sole election upon it happening of any of
the following specified events of default:
a) non-payment of any principal or interest on any indebtedness
created hereunder when due or default by Borrower in the
performance of any of the other terms and conditions of this
agreement or of any other agreement with the BANK;
b) Bank's belief in good faith that the prospect of payment of all
or any part of the Borrower's indebtedness to the Bank or the
performance of any of the Borrower's obligations to the Bank is
impaired;
c) Borrower's adjudication as a bankrupt, or the making of any
general assignment by the Borrower for the benefit of creditors,
or the institution by or against the Borrower of any type of
insolvency proceeding or of any proceeding for the liquidation
or the winding down of Borrower's affairs, or the appointment of
a receiver or trustee for the Borrower or for any of the
Borrower's assets, or the approval as properly filed of a
petition for Borrower's reorganization under the Bankruptcy Code
or otherwise, or Borrower's filing of any petition for the
arrangement under Chapter XI of the Bankruptcy Code or any
similar statute;
d) if any certificate, statement, representation, warranty or audit
furnished by or on behalf of the Borrower in connection with
this agreement (including those contained herein) or as an
inducement by the Borrower to enter into this agreement shall
prove to have been false in any material respect at the time as
of which the facts therein set forth were certified or stated,
or to have omitted any substantial contingent or unliquidated
liability or claim against the Borrower, or, if on the date of
the execution of this agreement there shall have been any
materially adverse change in any of the facts disclosed by any
such certificate, statement, representation, warranty or audit,
which change shall not have been disclosed by the Borrower to
the Bank at or prior to the time of such execution;
e) non-payment by the Borrower of any indebtedness to the Bank or
others when due;
f) if partnership or proprietorship, death or judicial declaration
of incompetency of any partner or proprietor, or Borrower's
termination or dissolution; or
g) the occurrence of any event described in paragraph 7(c), (d),
(e) or (f) hereof with respect to any endorser or guarantor, or
any party liable for the payment of Borrower's indebtedness to
the Bank, or the failure to furnish financial statements and
date with respect to any such endorser, guarantor or other party
when requested by Bank.
8. EXPENSES. Borrower will reimburse the Bank promptly (a) for any fees
payable to the appropriate public officer to perfect any lien or
other security interest taken to secure any indebtedness created
pursuant hereto, or the premium, not in excess of such filing fee,
payable for insurance in lieu, of such filing, (b) for the Bank's
actual expenditures, including reasonable attorney's fees and (c) for
all of the Bank's out-of-pocket expenses incurred in connection with
this loan, for any taxes which the Bank may be required to pay in
connection with the execution and delivery of any note representing
indebtedness created hereunder and for any expenses incident to the
enforcement of any provision of this agreement or of this note
representing indebtedness incurred hereunder or the liquidation of
any collateral for such indebtedness, including, without limitation,
attorney's fees.
9. WAIVER OF JURY TRIAL. Bank and Borrower hereby knowingly,
voluntarily and intentionally waive the right either may have to a
trial by jury in respect to any litigation based on, or arising out
of, under or in conjunction with the note, this agreement, and other
agreement contemplated to be executed in conjunction herewith or
therewith, or any course of conduct, course of dealing, statements
(whether verbal or written) or actions of either party. This
provision is a material inducement for Bank making the loan evidenced
by the note.
10. MISCELLANEOUS.
a) No delay or omission by the Bank in exercising any right or
remedy hereunder or with respect to any indebtedness created
hereunder shall operate as a waiver thereof or of any other
right or remedy, and no single or partial exercise of any other
right or remedy.
b) This agreement shall be construed and interpreted in accordance
with the laws of the State of Florida.
c) Borrower agrees that the proper venue for any action which may
be brought under this Agreement, in addition to any other venue
permitted by law, shall be in the county in which is located the
Bank's business office as designated above or the office of an
assignee of this Agreement.
BANK BORROWER
AmSOUTH BANK OF FLORIDA NOBILITY HOMES, INC.
By: /s/ Russell Branson By: /s/ Thomas W. Trexler
Russell Branson, Vice Thomas W. Trexler, Vice
President President
STATE OF GEORGIA
COUNTY OF LOWNDES
The foregoing LOAN AGREEMENT was acknowledged before me this 17th day of
July, 1996, by THOMAS W. TREXLER, as Vice President of NOBILITY HOMES,
INC., [ ] who is personally known to me or [X] produced FL D/L
7624839632530 as identification.
/s/ William E. Daniel
Notary Public, State of Georgia
Print Notary Name William E. Daniel
My commission expires ________________
Commission number ____________________
Notary Public, Lowndes County, Georgia
My Commission Expires June 3, 1997
STATE OF GEORGIA
COUNTY OF LOWNDES
The foregoing LOAN AGREEMENT was acknowledged before me this 17th day of
July, 1996, by RUSSELL BRANSON, as Vice President of AmSOUTH BANK OF
FLORIDA, [ ] who is personally known to me or [X] produced FL D/L
8652737604090 as identification.
/s/ William E. Daniel
Notary Public, State of Georgia
Print Notary Name William E. Daniel
My commission expires ________________
Commission number ____________________
Notary Public, Lowndes County, Georgia
My Commission Expires June 3, 1997
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 subsidiary at November
2, 1996 and November 4, 1995, and the results of their operations and
their cash flows for each of the three years in the period ended November
2, 1996 in conformity with generally accepted accounting principles.
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 generally accepted auditing standards 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 overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 1 to the financial statements, the Company adopted
Statement of Financial Accounting Standards No. 109 in 1994.
Price Waterhouse LLP
Orlando, Florida
December 30, 1996
<PAGE>
Nobility Homes, Inc.
Consolidated Balance Sheets
November 2, 1996 and November 4, 1995
1996 1995
Assets
Current assets:
Cash and cash equivalents $ 2,049,184 $ 932,432
Accounts receivable 642,626 544,620
Accounts receivable - trade, from
related parties 350,379 956,037
Inventories 7,820,908 6,786,159
Deferred income taxes - current 145,400 152,700
Other current assets 368,466 342,702
--------- ---------
Total current assets 11,376,963 9,714,650
Property, plant and equipment, net 1,166,429 994,376
Deferred income taxes - noncurrent 707,200 694,305
Other assets 1,620,046 1,493,084
---------- ----------
Total assets $ 14,870,638 $12,896,415
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,368,168 $ 1,453,823
Accrued expenses 692,737 866,499
Other current liabilities 553,477 437,899
---------- ----------
Total current liabilities 2,614,382 2,758,221
Notes payable - cash surrender value of
life insurance - 652,424
Note payable after one year - 6,644
---------- ----------
Total liabilities 2,614,382 3,417,289
---------- ----------
Stockholders' equity:
Preferred stock, $.10 par value, 500,000
shares authorized, none issued - -
Common stock, $.10 par value, 4,000,000
shares authorized, 3,436,790 and
3,351,306 shares issued in 1996 and
1995, respectively 343,679 335,130
Additional paid-in capital 2,345,715 1,972,264
Retained earnings 11,246,929 8,851,799
Less treasury stock at cost, 465,836
shares in 1996 and 1995 (1,680,067) (1,680,067)
---------- ----------
Total stockholders' equity 12,256,256 9,479,126
---------- ----------
Commitments and contingent liabilities
(Note 13) - -
---------- ----------
Total liabilities and
stockholders' equity $ 14,870,638 $12,896,415
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
Nobility Homes, Inc.
Consolidated Statements of Income
For the years ended November 2, 1996, November 4, 1995 and
October 29, 1994
1996 1995 1994
Net sales $35,738,608 $29,119,703 $21,209,805
Net sales - related parties 716,587 1,686,132 1,872,586
---------- ---------- ----------
Total net sales 36,455,195 30,805,835 23,082,391
Less cost of goods sold (27,159,157) (23,584,591) (17,997,513)
---------- ---------- ----------
Gross profit 9,296,038 7,221,244 5,084,878
Selling, general and
administrative expenses (5,456,774) (4,348,797) (3,295,053)
Interest expense on floor
plan financing - (162,752) (204,697)
---------- ---------- ----------
Operating income 3,839,264 2,709,695 1,585,128
Other income (expense):
Life insurance proceeds - 1,000,000 -
Gain on sale of idle facility - - 231,327
Gain on related party
installment sale - 348,884 162,530
Interest income 19,544 33,842 81,308
Interest expense (62,849) (72,172) (53,567)
Miscellaneous income
(expense) 90,171 29,189 (47,550)
---------- ---------- ----------
46,866 1,339,743 374,048
---------- ---------- ----------
Income before provision for
income taxes and cumulative
effect 3,886,130 4,049,438 1,959,176
Less provision for income taxes (1,491,000) (1,092,000) (770,000)
---------- ---------- ----------
Income before cumulative effect 2,395,130 2,957,438 1,189,176
Cumulative effect of change to
FAS 109 - - 580,000
---------- ---------- ----------
Net income $2,395,130 $2,957,438 $ 1,769,176
========== ========== ==========
Weighted average shares
outstanding 2,961,970 2,882,990 2,896,879
Earnings per share
Income before cumulative
effect $ .81 $ 1.03 $ .41
Cumulative effect - - .20
---------- ---------- ----------
Net income $ .81 $ 1.03 $ .61
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
Nobility Homes, Inc.
Consolidated Statements of Changes in Stockholders' Equity
For the years ended November 2, 1996, November 4, 1995 and
October 29, 1994
<CAPTION>
Additional
Common Paid-in Retained Treasury
Stock Capital Earnings Stock Total
<S> <C> <C> <C> <C> <C>
Balance at October 30, 1993 $ 172,473 $ 1,934,921 $ 4,125,185 $(1,412,880) $ 4,819,699
Treasury stock purchased
(12,000 shares) (108,000) (108,000)
Net income 1,769,176 1,769,176
---------- ---------- ---------- ---------- ----------
Balance at October 29, 1994 172,473 1,934,921 5,894,361 (1,520,880) 6,480,875
Common stock issued for
acquisition of retail
centers (23,529 shares) 2,353 197,647 200,000
Treasury stock purchased
(19,600 shares) (159,187) (159,187)
Stock split,
three-for-two, effective
December 22, 1995 64,122 (64,122) - -
Stock split,
three-for-two, effective
July 26, 1996 96,182 (96,182) - -
Net income 2,957,438 2,957,438
---------- ---------- ---------- ---------- ----------
Balance at November 4, 1995 335,130 1,972,264 8,851,799 (1,680,067) 9,479,126
Common stock issued for
acquisition of retail
centers (18,000 shares) 1,800 250,200 252,000
Stock options exercised
(5,000 shares at $5.00 per
share and 15,000 shares at
$7.00 per share) 2,000 128,000 130,000
Stock split,
three-for-two, effective
December 22, 1995 1,900 (1,900) -
Stock split,
three-for-two, effective
July 26, 1996 2,849 (2,849) -
Net income 2,395,130 2,395,130
---------- ---------- ---------- ---------- ----------
Balance at November 2, 1996 $ 343,679 $ 2,345,715 $11,246,929 $(1,680,067) $12,256,256
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Nobility Homes, Inc.
Consolidated Statements of Cash Flows
For the years ended November 2, 1996, November 4, 1995 and
October 29, 1994
1996 1995 1994
Cash flows from operating
activities:
Net income $ 2,395,130 $ 2,957,438 $ 1,769,176
Adjustments to reconcile net
income to net cash flows
provided by (used in)
operating activities:
Depreciation and amortization 144,519 114,861 104,569
Gain on sale of idle facility - - (231,327)
Gain on related party
installment sale - (348,884) (162,530)
Deferred income taxes 7,300 945,730 (945,730)
Deferred income taxes -
noncurrent (12,895) (847,005) 445,730
(Increase) decrease in:
Accounts receivable - trade (77,935) (165,737) (115,282)
Accounts receivable - trade,
from related parties 605,658 (164,026) 136,453
Inventories (939,776) (2,145,476) (565,142)
Other current assets (25,654) 74,593 (271,808)
Increase (decrease) in:
Accounts payable (85,655) 360,649 214,364
Accrued expenses (173,762) 227,834 28,150
Other current liabilities 115,578 108,320 (619,385)
---------- ---------- ----------
Net cash flows provided
by (used in) operating
activities 1,952,508 1,118,297 (212,762)
---------- ---------- ----------
Cash flows from investing
activities:
Purchase of investments - - (3,000,000)
Maturity of investments - - 3,040,000
Purchase of plant and equipment (239,039) (163,204) (96,446)
Proceeds from sale of property
and equipment - - 323,670
Issuance of notes receivable (25,778) - (47,500)
Collections of notes receivable 25,668 17,605 14,649
Collections of note receivable
from related party installment
sale - 297,584 120,558
Issuance of note receivable
from related party - - (862,500)
Collections of notes receivables
from related parties - - 965,500
Increase in receivables from
Officers for life insurance
premiums (19,975) (19,975) (19,975)
Increase in cash surrender
value of life insurance (47,564) (97,062) (87,447)
Net cash flows (used in)
provided by investing
activities (306,688) 34,948 350,509
---------- ---------- ---------
The accompanying notes are an integral part of these financial statements.
<PAGE>
Nobility Homes, Inc.
Consolidated Statements of Cash Flows
For the years ended November 2, 1996, November 4, 1995 and
October 29, 1994
1996 1995 1994
Cash flows from financing
activities:
Decrease in floor plan
financing $ - $(1,553,602) $(1,185,847)
Principal payments on note
payable to stockholders - (266,666) (43,334)
Additions to notes payable -
cash surrender value of
life insurance 24,929 31,459 30,917
Principal payments on notes
payable (683,997) (15,919) (14,051)
Additions to notes payable - - 8,000
Proceeds from exercise of
stock options 130,000 - -
Purchase of treasury stock - (159,187) (108,000)
---------- ---------- ----------
Net cash flows used in
financing activities (529,068) (1,963,915) (1,312,315)
---------- ---------- ----------
Increase (decrease) in cash and
cash equivalents 1,116,752 (810,670) (1,174,568)
Cash and cash equivalents at
beginning of year 932,432 1,743,102 2,917,670
---------- ---------- ----------
Cash and cash equivalents at
end of year $ 2,049,184 $ 932,432 $ 1,743,102
========== ========== ==========
Supplemental disclosure of
cash flow information
Interest paid $ 50,839 $ 183,624 $ 224,682
========== ========== ==========
Income taxes paid $ 1,200,000 $ 920,000 $ 1,426,000
========== ========== ==========
<PAGE>
Nobility Homes, Inc.
Notes to Consolidated Financial Statements
November 2, 1996 and November 4, 1995
1. Reporting Entity and Significant Accounting Policies
Operations
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 subsidiary,
Prestige Insurance Services, Inc., an independent insurance agency
(collectively the "Company"). The Company is engaged in the
manufacture and sale of manufactured homes to various dealerships
including their 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 fifteen Florida retail sales centers in Ocala (3),
Tallahassee, St. Augustine, Tampa, Chiefland (2), Lake City,
Auburndale, Jacksonville, Brooksville, Inverness, Tavares and Perry.
All intercompany accounts and transactions of Nobility and its wholly-
owned subsidiary have been eliminated in consolidation.
Fiscal Year
The Company's fiscal year ends on the first Saturday on or after
October 31. Prior to 1995, the Company's fiscal year ended on the
Saturday closest to October 31. The years ended November 2, 1996 and
November 4, 1995 consisted of a fifty-three week period and the year
ended October 29, 1994 consisted of a fifty-two week period.
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. Cash and cash equivalents in the accompanying
consolidated financial statements represent bank deposits.
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.
Other Assets
Other assets includes Receivables from Officers for Life Insurance
Premiums, Cash Surrender Value of Life Insurance (see Note 4) and
Goodwill. Goodwill represents costs in excess of the fair value of
net assets of businesses acquired and is amortized using the straight-
line method over 15 years. The Company periodically reviews goodwill
to assess recoverability. An impairment would be recognized if a
permanent diminution in value were to occur.
Revenue Recognition
The Company recognizes revenue on the sale of a manufactured home when
title transfers to an unrelated third party.
Gain on Related Party Installment Sale
Gain on related party installment sale represents gain associated with
the sale of the Company's limited partnership interest in a
manufactured housing community. The final amount recognized upon
collection of the related note receivable appears in the fiscal 1995
consolidated financial statements.
Other Current Liabilities
Other current liabilities primarily includes customer deposits of
approximately $451,000 and $312,000 and deferred gross profit on
related party sales of approximately $58,000 and $125,000, as of
November 2, 1996 and November 4, 1995, respectively. Gross profit on
sales of manufactured homes to certain related parties is deferred
until these manufactured homes are sold to unrelated third parties, at
which point the gross profit is recognized as earnings in the
accompanying consolidated financial statements.
Warranty Costs
Estimated costs related to product warranties are accrued as the
manufactured homes are sold and are included in accrued expenses in
the accompanying consolidated financial statements.
Income Taxes
The Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (FAS 109) during the first quarter
of fiscal 1994. Under provisions of FAS 109, the Company elected not
to restate prior years' consolidated financial statements. The
$580,000 cumulative effect of initial adoption on prior years'
retained earnings has been included in the 1994 consolidated financial
statements as the cumulative effect of a change in accounting
principle.
FAS 109 requires the recognition of deferred taxes for the expected
future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. Temporary
differences that give rise to the Company's deferred tax assets and
liabilities relate primarily to the allowance for doubtful accounts.
Treasury Stock
Treasury stock is recorded at its cost to the Company and is presented
as a reduction to stockholders' equity in the accompanying
consolidated financial statements.
Earnings Per Share
Earnings per share information was retroactively restated to give
effect to the stock splits as discussed in Note 14. Earnings per
share are computed by dividing net income by the weighted average
number of common shares outstanding during the period.
Concentration of Credit Risk
The Company's customers are concentrated in the State of Florida. No
single customer accounted for over 10% of the Company's sales.
Fair Value of Financial Instruments
The carrying amount of accounts receivable and accounts payable
approximates fair value because of the short maturity of those
instruments. The fair value of the revolving line of credit,
revolving credit agreement and floor plan financing is assumed to
approximate the recorded value because there have not been any
significant changes in market conditions or specific circumstances
since the instruments were originally recorded.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" (FAS 121). FAS 121 establishes accounting standards for
the impairment of long-lived assets, certain identifiable intangibles,
and goodwill related to those assets to be held and used and for long-
lived assets and certain identifiable intangibles to be disposed of.
FAS 121 is effective for fiscal years beginning after December 15,
1995. Management believes there will be no impact on the Company's
consolidated financial statements if FAS 121 were adopted currently.
Reclassifications
Certain amounts in the prior year consolidated financial statements
have been reclassified to conform to current year presentation.
2. Acquisitions
On November 22, 1995, the Company acquired three manufactured home
retail sales centers in Florida in an asset acquisition by issuing
18,000 shares of common stock valued at $252,000. On May 8, 1995, the
Company acquired two manufactured home retail sales centers in Florida
in an asset acquisition by issuing 23,529 shares of common stock
valued at $200,000. Both transactions were accounted for using the
purchase method of accounting. The purchased assets were recorded at
the estimated fair value at the date of acquisition. Approximately
$74,000 and $147,000 of goodwill was recorded for each acquisition,
respectively, which is being amortized on a straight-line basis over
15 years. The results of operations of the acquired businesses have
been included in the consolidated financial statements from the date
of acquisition.
3. Related Party Transactions
Affiliated Entities
The President, Chairman of the Board of Directors and 49% stockholder
of the Company (the "President") owns 100% of the stock of TLT, Inc.
TLT, Inc. is the general partner of three limited partnerships which
are developing manufactured housing communities in Central and North
Florida (the "TLT Communities"). The President owns between a 23% and
a 100% direct and indirect interest in each of these limited
partnerships. The TLT Communities purchased manufactured homes
exclusively from the Company during fiscal 1996, 1995 and 1994.
Terms of Sales to Related Parties
The Company sells manufactured homes to unaffiliated customers under
various terms which require payment between 15 and 180 days from the
date of shipment. The Company charges the same sales price to both
unaffiliated customers and related party customers. As discussed in
Note 1, the Company defers gross profits on sales to TLT Communities,
a related party, until such time as the manufactured homes are sold to
a retail buyer.
Accounting Services
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.
Volume Rebate Program
The Company has a volume rebate program for all dealers which pays
rebates based upon sales volume. Volume rebates are recorded as a
reduction of sales in the accompanying financial statements. Volume
rebates for the TLT Communities amounted to $28,000 in 1996, $91,000
in 1995 and $97,000 in 1994.
Net Sales and Deferred Gross Profit
The following summarizes the portion of the Company's net sales and
deferred gross profit for the years ended November 2, 1996, November
4, 1995 and October 29, 1994 resulting from related party
transactions:
<TABLE>
<CAPTION>
1996 1995 1994
Net Deferred Net Deferred Net Deferred
Sales Profit Sales Profit Sales Profit
<S> <C> <C> <C> <C> <C> <C>
TLT, Inc. and TLT
Communities $716,587 $58,000 $1,280,109 $124,695 $1,395,207 $84,633
</TABLE>
Notes Receivable from Related Parties
Beginning in 1990, 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. As of November 2, 1996 and
November 4, 1995, advances amounted to $1,919,000. These advances are
non-interest bearing and have been fully reserved since 1991. No
additional amounts have been advanced for working capital needs since
1993.
Receivable from Officers for Life Insurance Premiums
The Company funds premiums for the President on two split-dollar life
insurance policies with a face value of $1,000,000 at November 2, 1996
and November 4, 1995. Commencing in fiscal year 1996, the Company
paid premiums for the Executive Vice President on a split-dollar life
insurance policy with a face value of $1,200,000 at November 2, 1996.
These policies insure the President and the Executive Vice President
and name their respective families as beneficiary. The cumulative
premiums advanced under this arrangement amounted to $498,560 at
November 2, 1996 and $478,585 at November 4, 1995. The advances are
non-interest bearing. Net cash surrender value at November 2, 1996 of
approximately $591,700 and approximately $563,000 at November 4, 1995
was pledged to the Company as security for advances under this
arrangement.
4. Other Assets
Other assets at November 2, 1996 and November 4, 1995 are comprised of
the following:
1996 1995
Goodwill $206,779 $147,356
Receivables from Officers for
life insurance premiums 498,560 478,585
Cash surrender value of
life insurance 914,707 867,143
--------- ---------
$1,620,046 $1,493,084
========= =========
5. Inventories
Inventories at November 2, 1996 and November 4, 1995 are summarized as
follows:
1996 1995
Raw materials $554,255 $530,061
Work-in-process 95,279 73,068
Finished homes 6,302,097 5,366,658
Pre-owned manufactured homes 311,133 292,374
Model home furniture 558,144 523,998
--------- ---------
$7,820,908 $6,786,159
========= =========
The finished homes, pre-owned manufactured homes and model home
furniture are maintained at the Prestige retail sales centers.
6. Property, Plant and Equipment
Property, plant and equipment along with their estimated useful lives
and related accumulated depreciation as of November 2, 1996 and
November 4, 1995 is summarized as follows:
Range
of Lives
in Years 1996 1995
Land - $ 286,639 $ 286,639
Land and leasehold improvements 10-20 214,133 186,751
Buildings and improvements 15-40 1,221,332 1,054,374
Machinery and equipment 3-10 477,870 533,997
Furniture and fixtures 3-10 243,325 201,637
---------- ----------
2,443,299 2,263,398
Less accumulated depreciation (1,276,870) (1,269,022)
---------- ----------
$ 1,166,429 $ 994,376
========== ==========
Depreciation expense totaled $129,700, $114,900 and $104,600 for
fiscal 1996, 1995 and 1994, respectively.
7. Income Taxes
The provision for income taxes for the years ended November 2, 1996,
November 4, 1995 and October 29, 1994 consists of the following:
1996 1995 1994
Current tax expense:
Federal $ 1,282,000 $ 843,000 $ 592,000
State 215,000 150,000 98,000
----------- ---------- ----------
1,497,000 993,000 690,000
Deferred tax expense:
Federal (6,000) 99,000 80,000
----------- ---------- ----------
Provision for income
taxes $ 1,491,000 $ 1,092,000 $ 770,000
=========== ========== ==========
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 2, 1996,
November 4, 1995 and October 29, 1994.
1996 1995 1994
Provision - federal
statutory tax rate $ 1,331,000 $ 1,328,000 $ 666,000
Increase (decrease)
resulting from:
State taxes, net of
federal tax benefit 131,000 99,000 71,000
Permanent differences:
Proceeds from officers
life insurance - (340,000) -
Other 29,000 5,000 33,000
----------- ------------ ----------
Provision for income
taxes $ 1,491,000 $ 1,092,000 $ 770,000
=========== ============ ==========
The types of temporary differences between the tax bases of assets
and liabilities and their financial reporting amounts that give rise
to deferred tax assets and deferred tax liabilities are as follows
(these numbers are shown net of tax):
1996 1995
Gross deferred tax assets:
Allowance for doubtful accounts $ 722,000 $ 740,000
Deferred gross profit on related
party sales 22,000 47,000
Accrued expenses 83,900 66,200
Reserve for warranty expense 39,500 39,500
---------- ----------
Total deferred tax assets 867,400 892,700
---------- ----------
Gross deferred tax liabilities:
Depreciation (14,800) (44,000)
Accrued expenses - (1,695)
---------- ----------
Total deferred tax liabilities (14,800) (45,695)
---------- ----------
Net deferred tax asset $ 852,600 $ 847,005
========== ==========
The Company believes that, based upon the lengthy and consistent
history of profitable operations, it is probable that the net
deferred tax assets of $852,600 at November 2, 1996 will be realized
on future tax returns, primarily from the generation of future
taxable income.
8. Life Insurance Policies
The Company owns certain life insurance policies with a total face
value of approximately $960,000 at November 2, 1996 and November 4,
1995. These policies insure the President of the Company and name
the Company as beneficiary. The accompanying consolidated financial
statements include the cash surrender value of these policies as a
noncurrent other asset in the amount of $914,707, and $867,143 as of
November 2, 1996 and November 4, 1995, respectively.
The Company had loans outstanding against the cash surrender value
of these policies totaling $652,000 as of November 4, 1995. In July
1996, the Company paid in full loans outstanding against the cash
surrender value of the life insurance policies.
The Company received $1,000,000 from the proceeds of a life
insurance policy on the former President of Prestige who died during
fiscal 1995. This amount has been included as a component of other
income in the accompanying consolidated statement of income.
9. Financing Agreements
Revolving Line of Credit
On July 17, 1996, the Company entered into a revolving line of
credit agreement ("line of credit") with a bank which provides for
borrowings up to $1,500,000. The line of credit is payable on
demand and provides for monthly interest on the outstanding balance
at the 30-day LIBOR rate plus 2.25% (7.75% at November 2, 1996).
The line of credit is due on demand and includes certain restrictive
covenants relating to tangible net worth, minimum levels of working
capital and acquiring new debt.
Revolving Credit Agreement
The Company also maintains a revolving credit agreement (the
"Agreement") with a bank which provides for borrowings up to
$2,500,000. The Agreement expires on demand and provides for
interest at the annual LIBOR rate plus 2.5% (8.21% at November 2,
1996) on the outstanding balance.
As of November 4, 1995, borrowings outstanding under the Agreement
totaled $919,000. This amount has been netted against cash and cash
equivalents in the consolidated balance sheet due to the legal right
of offset established by a Cash Management Agreement with the bank.
The outstanding advance was repaid on the first business day of
fiscal year 1996. Interest expense under the Agreement was
approximately $26,000 and $19,800 for 1996 and 1995, respectively.
There are no commitment fees or compensating balance arrangements
associated with the line of credit or the Agreement. At November 2,
1996 there were no borrowings outstanding under either credit
facility.
Floor Plan Financing
The Company has floor plan arrangements with certain finance
companies to finance a portion of its inventory. Amounts are
borrowed on individual manufactured homes up to the invoice price.
These loans bear interest at annual rates up to 1.50% above the
prime interest rate, with interest payable monthly, and are secured
by the related manufactured home. These loans are due at the
earlier of the sale of the manufactured home to retail customers or
various terms which range from 360 days to 540 days.
Amounts outstanding under these arrangements totaled $1,553,600 at
October 29, 1994. There were no amounts outstanding at November 2,
1996 or November 4, 1995. The Company incurred interest expense
under these arrangements of approximately $163,000 and $205,000 in
1995 and 1994, respectively.
10. 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.
On December 18, 1995, an investor relations consultant exercised
certain stock options granted in February 1993 to purchase 20,000
shares of common stock. The shares were purchased at an exercise
price of $5.00 per share for 5,000 shares and $7.00 per share for
the remaining 15,000 shares.
11. 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 $568,300, $422,400 and
$340,800 for fiscal 1996, 1995 and 1994, respectively.
12. Significant Fourth Quarter Adjustment
The Company recorded an adjustment in the fourth quarter of 1995 to
defer gross profit on certain intercompany and related party sales,
primarily due to additional inventory at new retail sales centers.
The adjustment amounted to approximately $322,000 and represented a
charge to the earnings of the Company. This adjustment impacts all
quarters previously presented by the Company for fiscal 1995.
13. Commitments and Contingent Liabilities
Leases - Operating
The Company leases the property for the Prestige retail sales
centers from various unrelated entities under operating lease
agreements expiring through September 1999. The Company also leases
certain equipment under operating leases. Total lease expense
amounted to approximately $413,000, $360,000 and $241,000 in fiscal
1996, 1995 and 1994, respectively.
Future minimum lease payments under operating leases with initial or
remaining noncancelable lease terms in excess of one year at
November 2, 1996 are as follows:
Year
1997 $ 140,540
1998 97,282
1999 50,510
---------
Total $ 288,332
=========
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 $1,270,000, $781,000 and $273,000 at November 2, 1996,
November 4, 1995 and October 29, 1994, 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 1996, 1995 or 1994.
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, any related liabilities that might arise would not
have a material adverse effect on the Company's financial position
or results of operations.
14. Stock Splits
On November 7, 1995 and July 9, 1996, the Company declared a three-
for-two stock split in the form of a stock dividend, payable on
January 31, 1996 and August 16, 1996 to stockholders of record as of
December 22, 1995 and July 26, 1996, respectively. Fiscal 1995
stockholders' equity has been restated to give retroactive
recognition to the stock splits in prior periods by reclassifying
from additional paid-in-capital to common stock the par value of the
1,650,530 shares arising from the split. In addition, all
references in the financial statements to per share amounts of the
Company's common stock have been restated.
Exhibit 21
SUBSIDIARIES OF REGISTRANT
Prestige Home Centers, Inc.
Prestige Insurance Services, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-02-1996
<PERIOD-START> NOV-06-1995
<PERIOD-END> NOV-02-1996
<CASH> 2,049,184
<SECURITIES> 0
<RECEIVABLES> 993,005
<ALLOWANCES> 0
<INVENTORY> 7,820,908
<CURRENT-ASSETS> 11,376,963
<PP&E> 1,166,429
<DEPRECIATION> 1,276,870
<TOTAL-ASSETS> 14,870,638
<CURRENT-LIABILITIES> 2,614,382
<BONDS> 0
0
0
<COMMON> 343,679
<OTHER-SE> 11,912,577
<TOTAL-LIABILITY-AND-EQUITY> 14,870,638
<SALES> 36,455,195
<TOTAL-REVENUES> 36,455,195
<CGS> 27,159,157
<TOTAL-COSTS> 5,456,774
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,886,130
<INCOME-TAX> 1,491,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,395,130
<EPS-PRIMARY> .81
<EPS-DILUTED> 0
</TABLE>
